Question

Imagine you have $10,000 that you want to invest and you want to invest in some bonds.

*You would be looking at the coupon rate (which is the interest rate that it will pay) since you want to get the highest return on your investment

*You would also be looking at the risk rating to make sure it is not too risky or you might lose your money if the company gets into trouble financially. choose any company

Example Microsoft or apple or any company that you would consider buying bonds from.

Look at the coupon and then the Moody's rating ( this measures risk) and decide how you will invest your money.

Say which bonds you will invest your $10,000 in and explain your choice in the discussion!

Answer 1

Bond investment strategy is important as it can minimize the risk by diversification and correct portfolio will provide required annual income. Treasury bonds are government backed securities which are considered risk free. Optimum portfolio of risk free and risky asset can maximize the investor's objective.

Explanation:

Information taken from Markets business insider website :

Three factors to consider for buying bonds :

a) Coupon rate

b) Yield to maturity

c) Credit rating

Selection of bonds depends upon investor's objective. If investor's goal is to earn minimum regular income which is risk less , it is better to go with government bonds. If investor's aim is to receive higher interest then corporate bonds with higher coupon rate and longer maturity will be preferred.

Credit rating should also be considered to check the credit worthiness of companies.

I have considered Investment grade corporate bonds only while you can take Non-investment grade bonds from the website for your answer.

From the above information : let us analyze different bonds

21st Century Fox America Inc 3M Citigroup Inc

Coupon rate 6.40% 6.375% 5.87%

Yield rate 3.97% 2.77% 3.47%

Credit rating Baa1 A1 A3

21st Century Fox America Inc gives higher coupon and higher yield because it has lower credit rating. Higher the risk higher the reward. Risk averse investor will try to avoid this bond among the three but investor who is willing to accept risk in need of higher income will select this bond.

3M gives coupon rate similar to 21st Century Fox but yield is lower because of high credit worthiness.

It is more secure than bond of 21st Century Fox.

Citigroup is similar in rating to 3M but provides lower coupon.

As an investor having $10,000 , i would invest in 20% in government bonds to have secured income ,

70% in 3M bond and 10% in non-investment grade which is high yield providing bonds.