Question

Your friend Carlos Fixed would liket to invest in the following three bonds:                A. Corporate...

Your friend Carlos Fixed would liket to invest in the following three bonds:

               A. Corporate AAA. 5% coupon, 20 yrs. to maturity, 4% YTM

               B. High Yield BBB. 8% coupon, 10 yrs. to maturity, 10% YTM

               C. US Treasury, 3% coupon, 3 yrs. to maturity, 2% YTM

Required:

               a. Recommend weights to Carlos for each one of securities above assuming

                              i.   Contraction

                              ii. Recession

                              iii. Recovery

weights > 0

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