Question

Explain one bond contract feature that would attract you to a bond and one feature to which you would be indifferent. Explain why.

Explain why you might invest in a lower rated bond instead of a higher rated bond and what you would consider in doing so.

Answer 1

One Bond feature that will attract me is conversion feature of the bond because I will bemore attracted towards investment into those bonds which can be converted into stock after a certain period of time because they will be reducing the risk upto certain extent.

One feature of the bond to which I would be indifferent is credit rating because credit rating will be leading to offer with lower Yield, generally associated with the corporate bonds so I would rather invest in treasury bonds when I want security, rather than the corporate Bonds

I will be investing in lower rated bonds because I want to earn higher amount of interest as these lower rated bonds will be offering with higher yield where are highly rated bonds will offer me with low Yield and it will improve my overall rate of return.

I will consider that these low rated bonds does not become a junk Bond completely in coming years and the company does not go insolvent.