Financial Risk Manager Part 1
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A financial consultant is offering advice to a high-net-worth client who intends to invest USD 500,000 in a bond rated at least AA. The consultant is assessing bonds from Company X, Company Y, and Company Z to determine the bond that satisfies the client's credit rating requirement and provides the maximum return at maturity.
The following data has been collected by the consultant:
Company/Bond Bond rating Annual coupon rate (%) Time to maturity in years Price (USD) Par value (USD) X AA+ 3.50 5 975 1,000 Y A+ 3.56 5 973 1,000 Z AAA 3.38 5 989 1,000
Considering that the bonds make semi-annual coupon payments, which bond should the financial consultant choose for the client?
A financial consultant is offering advice to a high-net-worth client who intends to invest USD 500,000 in a bond rated at least AA. The consultant is assessing bonds from Company X, Company Y, and Company Z to determine the bond that satisfies the client's credit rating requirement and provides the maximum return at maturity.
The following data has been collected by the consultant:
| Company/Bond | Bond rating | Annual coupon rate (%) | Time to maturity in years | Price (USD) | Par value (USD) |
|---|---|---|---|---|---|
| X | AA+ | 3.50 | 5 | 975 | 1,000 |
| Y | A+ | 3.56 | 5 | 973 | 1,000 |
| Z | AAA | 3.38 | 5 | 989 | 1,000 |
Considering that the bonds make semi-annual coupon payments, which bond should the financial consultant choose for the client?
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