I’m working on a Economics exercise and need support.
- Go to a website of your choice and search for Canada Bonds. (I recommend https://markets.businessinsider.com/bonds )
Choose 5 different Canadian bonds with the following characteristics:
- One Federal government bond trading at a premium with more than ten years to maturity
- One Federal government bond trading at a discount with any maturity
- One corporate bond trading at a discount with less than ten years to maturity
- One corporate bond trading at a premium with more than ten years to maturity
- One Provincial government bond trading at a premium with any maturity
- For each bond, calculate the current yield.
- Compare the current yield to the yield to maturity. For which bonds is current yield closer in value to the yield to maturity? Explain
- A bond with $1,000 face value, 6% coupon, market interest rates of %7, and three years to maturity.
- Calculate the duration of the bond
- Assume that market interest rates increased to 10%, re-calculate the duration of the bond
- Assume that the market interest rates increased to 15%, re-calculate the duration of the bond
- Comment generally on the relationships between the interest rates, coupons, and duration
- A $1000 face value bond has a 10% coupon rate, its current price is $960, and its price is expected to increase to $980 next year. Calculate the current yield, the expected rate of capital gain, and the expected rate of return.
- If there is a decline in interest rates, which would you rather be holding, a long-term bond or a short-term bond?Explain.
- Albert, a financial advisor in greater Halifax area, has just emailed his clients giving them the following advice: “there is no doubt that long-term bonds are a great investment because their interest rates are over 20%.” Comment generally on Albert’s advice. Do you agree him? Disagree? Or uncertain?
- If you suspect that a company will go bankrupt next year, which would you rather hold, bonds issued by the company or equities issued by the company?Explain
- Why might you be willing to make a loan to your neighbour by putting funds in the bank and having the bank lend her the funds at 10% interest rate, rather than lend her the funds yourself?