Look at the Morningstar printouts on the six bonds (“Bond Data”). All come from FINRA which publishes data on every traded bond. All Bonds mature at roughly the same time (13 years from now). Some information is highlighted with notations to help explain what is meant in the event you are unclear as to terminology from the lectures.
Remember that all Bonds “scale” to $1,000… so, $101 for a market price really means $1,010 (or 101% of face value). Use only the information on these pages which was printed on 04.02.2021 – and you answer the question as if that is the date of your analysis. Please use only this data. Therefore, you are making your decision on that date, after trading finished for the week. Any bond that says “Federal” “FEDERAL” (or Tenn. Valley Authority) can be considered as if a U.S. Government bond. Assume any bonds called (bought back) are bought back at par ($1,000 per $1,000 of face value, regardless of the market prices). The Yield-to-maturity is referenced on the FINRA pages as the Last Trade Yield and as we did in class, includes the current coupon yield (coupon divided by current price) and also a “yield component” from the capital gain or loss on the Bond. As covered in class, this capital gain or loss might arise since the current market price might be different than the final value of maturity (or sale price if it is called from you) when you are paid back the face amount (100 cents on the dollar, or whatever the call price is for that Bond). One of the Bonds does not show a Yield to Maturity… but if you buy that Bond you are certainly expecting to get paid something, somehow.
Question: They all have different characteristics and yields even though they mature at about the same point in time. Please compare and contrast the attributes of these Bonds. You could write a dissertation here… just give me the most important facts within the length allowed for this answer by picking a few comparisons between any of the six in order to make your point (examples from the Bonds to explain your point)… Do any of these yields-to-maturity strike you as unusual (in comparison to the yield of the others)? In a sentence or two, tell me which two bonds YOU would purchase if buying to add into your existing (well diversified portfolio), if each bond investment would be 5% of your portfolio (so 10% in total, split 50/50 between the 2 bonds you are selecting from amongst these 6). If any assumptions being made behind your decision based upon your investing situation or portfolio, or the bond itself, please let me know the assumptions of the assumed personal situation (i.e., Pension Fund, individual investor, managing the money of a high net-worth individual, etc.)
Comment: There is obviously no right or wrong answer as to which bonds “are best” since these are market prices, and the prices reflect the weighted average consensus of all the experts who both buying and selling… However, depending upon your specific assumptions about your specific situation, each of these bonds might appeal to different investors for different reasons. I want to see that you understand the various ways that risks, and benefits can impact a fixed income investor and how that impacts your perception of a reasonable return.
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