Financial Risk Manager Part 1
Get started today
Ultimate access to all questions.
Ultimate access to all questions.
An investment advisor is advising a wealthy client. The client would like to invest USD 500,000 in a bond rated at least AA. The advisor is considering bonds issued by Company X, Company Y, and Company Z, and wants to choose a bond that satisfies the client's rating requirement, but also has the highest yield to maturity. The advisor has gathered the following information:
| Company/Bond | X | Y | Z |
|---|---|---|---|
| Bond rating | AA+ | A+ | AAA |
| Annual coupon rate (%) | 3.50 | 3.56 | 3.38 |
| Time to maturity in years | 5 | 5 | 5 |
| Price (USD) | 975 | 973 | 989 |
| Par value (USD) | 1,000 | 1,000 | 1,000 |
Assuming semi-annual coupon payments, which bond should the investment advisor purchase for the client?