Suppose, you are working as an investment consultant in a consultancy firm and most of your clients are habitual investors, who are maintaining their own portfolios comprising of various combinations of stocks and bonds.
Mr. Zahid, a habitual investor comes to you for consulting about adding one more potential investing option to his existing portfolio. Currently, as per your analysis, there are two bonds available in the market with the following data:
Bond A Bond B
Maturity 3 years 8 years
Coupon payment 10% Annual 10% Semiannual
Yield 6.23% 9.8%
*Note: Interest rate fluctuations are high in the market
Required:
• Suggest Mr. Zahid, who is interested to add only one bond to his portfolio about the suitable bond for his portfolio.
• Support your choice by elaborating the reason on which the suggested bond is considered as a preferred option.