Discuss the conditions under which investors would prefer to hold short-term bonds and when they would...

Discuss the conditions under which investors would prefer to hold short-term bonds and when they would prefer to hold long-term bonds. Find an Internet site that explains duration and how investors should utilize it in determining the appropriate bond investing strategy, given current interest rates and interest rate expectations. Provide a link for your classmates.

Expert Solution

investment in Short term or Long term bonds depend upon following points-

1.Risk taking ability- If a person wants to take higher risk then he should go for Long tern bonds as LTB carries higher risk. Maturity period of bond affects bond price and interest rate because longer maturity period bond suffer more up-down in interest rate.In short period there is less fluctuation in interest rate and in short term investor can get fixed income.

2.Capital availability - If capital is available for short term period investor should invest in short term bond otherwise investor have to suffer higher transaction cost. if capital available for long term period investor can go for long term bond. Hedge position also affects investment period.Hedge position may increase short term investment because there may be some fund remain free for some time in hedge position.

3.Tax advantage- investment in long term bond provides higher tax advantage instead of short term bond

4.Redemption period- If company fixes redemption period and investor wants to invest in that company then investor have to invest in that bond and maturity of bond may be short term or long term decided by redemption period.

5.Purpose of investment- In investor want to save money for short term purpose he should invest in short term bond otherwise he can invest in long term bonds.

jeff jeffy answered 10 months ago

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