Explain why bonds are a good investment

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Case Study:

1. Mrs. Smith, a retired woman wants to invest some money from her retirement fund into bonds. Explain why bonds are a good investment for her as compared to shares.

2. XYZ Company is considering issuing bonds. The finance manager is thinking of adding a call provision to the bonds. But he is confused whether to do that or not as he doesn't understand bond mechanics.

As a consultant advise the manager and explain to him the following:

What is interest rate (or price) risk? Which bond has more interest rate risk, an annual payment 1-year bond or a 10-year bond? Why?

Who gains from a call option? In what situation? What can we say about the prices and yields of two identical bonds if has a call option and the other has not?

Will it be better if XYZ considers sinking fund provision? Explain.

word count:500

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The paper is in relation to analysis of bonds from the perspective of investment, volatility, interest rate risk. Various other aspects such as callable bonds, sinking fund provision, risk level of two identical bonds and their yield and price level have been analysed and explained.

Reference no: EM131904693

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Reviews

inf1904693

4/24/2018 6:14:53 AM

It should be stating the reason why Mrs Smith is advised and everything should be relating to the case study. Read the case study with respect to the question. Investopedia. [Online]. What’s the difference between shares and stocks? Retrieved from: https://www.investopedia.com/ask/answers/difference-between-shares-and-stocks/ Investopedia. [Online]. Interest Rate Risk. Retrieved from: https://www.investopedia.com/terms/i/interestraterisk.asp See these are the reference used.

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