Financial Risk Manager Part 1
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An investor seeks advice on how to invest USD 500,000 in a bond with a minimum rating of AA. The financial advisor is considering bonds from three companies—Company X, Company Y, and Company Z—and aims to identify the bond that not only meets the minimum rating criteria but also offers the highest yield to maturity. Here is the data collected by the advisor:
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 the bonds make semi-annual coupon payments, which bond should the financial advisor recommend to the investor?
An investor seeks advice on how to invest USD 500,000 in a bond with a minimum rating of AA. The financial advisor is considering bonds from three companies—Company X, Company Y, and Company Z—and aims to identify the bond that not only meets the minimum rating criteria but also offers the highest yield to maturity. Here is the data collected by the advisor:
| 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 the bonds make semi-annual coupon payments, which bond should the financial advisor recommend to the investor?
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