To select: Purchasing of bond either ‘Aaa’ or ‘Aa’ for one year investment horizon according to the excepted return value. Introduction : Selection of the bond is decided by the incremental return value. Higher the value of return will be chosen by the investor. Return value means returns or payment after the maturity period of the bond.

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Chapter 16, Problem 6CP

A

Summary Introduction

To select: Purchasing of bond either ‘Aaa’ or ‘Aa’ for one year investment horizon according to the excepted return value.

Introduction : Selection of the bond is decided by the incremental return value. Higher the value of return will be chosen by the investor. Return value means returns or payment after the maturity period of the bond.

B

Summary Introduction

To explain: The variables which can cause realized incremental returns to differ from the indicated initial spread relationships.

Introduction: The value of incremental return is affected by the variables like quality credit, maturity period of the bond, and spread of bond. Quality credit defines as the type of the credit and maturity period is time period of the bond.

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