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Financial Report (Case Analysis) 2 Pages

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Project Budget
$10 - $30 USD
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Project Description

1. Question

Suppose that the Johnson family has the option of purchasing two bonds.

• Bond A is a $4000 10% 10 year bond paying annual coupons with redemption value

$2000, which can be purchased at a premium for $3000. This bond can optionally be

sold at the end of the 5th year for 6,000.

• Bond B is a $4000 10% 10 year bond paying annual coupons with redemption value

$3000, which can be purchased at a discount for $2000. Suppose further that this

bond has a lockout period of 5 years, after which a put option can be placed at the

end of years {6, 7, 8, 9} for put premium of $150.

2. Assignment

Compile a technical report to explain to the Johnson family which bond option you would recommend they invest in, and at which time (if any) they should exercise their put and/or selling option. (To get you started you may want to consider laying out for them some visuals and concise explanations of their gains in terms of yield rates depending on the bond they choose and which put option they choose to exercise (in the case of Bond B), or if they choose to sell (in the case of Bond A).)

Remember, the Johnson family are not interest theory experts and therefore the report should be self contained meaning any terms you use, such as APY, put option, present value, etc. should be defined as it is not assumed your reader has taken the same class.

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