Question

You work as the treasurer of a large manufacturing corporation where earnings are down substantially as a result of COVID-19. In an environment where interest rates are going to decline over the next three to six months, you want to invest in fixed-income securities to make as much money as possible for the firm. The board recommends investing in one of the following securities: • Three-month Treasury Bill • Twenty-year Corporate Bonds • Twenty-year zero-coupon Treasury Bonds Describe a suitable strategy based on your knowledge of bond theory, which may allow the company to maximize its profit if it were to undertake one of these investments. Further, advise the board on what is best for the company at this time given your knowledge of other investment options in the market.

Answer 1

in case of a manufacturing corporation which is most effected by COVID - 19, the need to maintain cash balance is of highest priority due to less convertion rate and reduced credit period offered by suppliers of materials. hence as per top financial advisers around the world till the time some clarity comes up it is best to invest in highly liquid risk free investments which might offer low interest rates but is fully secured and can be converted into cash as needed.

hence the best option would be 3 month treasury bill or any fixed deposit with any government owned bank.

20 years corporate bonds is highly volatile in nature and investing for such long period is not a good option for a manufacturing firm.