Question

saving money to buy a home in 9 years. Josh currently has a saving of $300,000 and has identified the following strategies to achieve his goal:

                a- Buy coupon bonds that mature in 9 years

                b- Buy a Treasury STRIPS that matures in 9 years

                c- create a bond portfolio with a duration of 9 years

Given his goal, rank these strategies and explain the reasoning behind your ranking system.

Answer 1

I will rank these strategies from the best to the worst-

1.formulating a bond portfolio with the duration of 9 years will mean that the investor is trying to diversify his overall exposure into different kind of bonds and he should be trying to diversify the unsystematic risk and he is a very aware investor and this strategy will be helpful in various different economics Scenario.

2. Buying treasury strips that mature in 9 years will be reflecting that the investor is trying to focus at the risk free nature of the securities and he is trying to include the the risk-free securities which have the government backing into his overall portfolio that will secure him from down sides.

3. Buying coupon bonds that mature in 9 years will be representing that investor is not aware about his risk management strategies and he is trying to buy the corporate Bond and he has not diversified his portfolio so he is not a risk aware investor.