CASE 1: (Bond Valuation and Selection)
You are working as a Fund Manager in an investment bank. You have been allocated A$1million to invest in corporate bonds. You have researched the bond market and shortlisted the following three bonds:
Your investment bank requires a minimum rate of return of 6% from any bond investment.
What is the percentage change in prices for each bond in (b) compared to the prices obtained under (a) above?
What are the new values for each bond? What is the percentage change in values for each bond compared to prices calculated under (a) above?
Alpha – $670.55
Beta – $940.88
Theta – $1,203.80