Question

Jane manages a fixed income portfolio of three bonds as shown in the following table. The...

Jane manages a fixed income portfolio of three bonds as shown in the following table. The duration of her portfolio is ______________?                                                                                 (5)

                                                                                                         

Bond

Maturity

Price

Par Amount

Duration

A

15-year

$110.3412

$10 million

7.39

B

20-year

$101.4835

$5 million

9.21

C

25-year

$86.2746

$8 million

12.21

Hint: You have to first calculate the market value of each bond, then use the portfolio duration formula

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Bond Maturity Price Par Amount Market Value of investment Weightage Duration Product
A 15-year 110.3412    10,000,000    11,034,120 48% 7.39       3.544
B 20-year 101.4835      5,000,000      5,074,175 22% 9.21       2.031
C 25-year 86.2746      8,000,000      6,901,968 30% 12.21       3.662
Portfolio Value    23,010,263 Portfolio Duration       9.237
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Suppose you are a money manager who manages a portfolio of two bonds, A and...
1. Suppose you are a money manager who manages a portfolio of two bonds, A and B. Bond A is a 5% semi-annual coupon bond with 5 years to maturity; its par value is $1000; the YTM is 7%; there are 10,000 units of bond A held in the portfolio. Bond B is a 3-year 6% semi-annual coupon bond, $500 par value, and its YTM is 8%; you hold 5,000 units of Bond B. (You must keep 5 decimal places...
b. Tony, a fixed-income portfolio manager, is managing a portfolio of $10 million. His target duration...
b. Tony, a fixed-income portfolio manager, is managing a portfolio of $10 million. His target duration is 7 years, and he can choose from two bonds: a zero-coupon bond with maturity of 3 years, and a perpetuity, each currently yielding 8%. i. What is the weighting of each bond will Tony hold in his portfolio? ii. Suppose that a year has passed and the yield has fallen to 6%. What will these weightings be if target duration is now 6...
19. A fixed-income portfolio is invested equally among three zero-coupon bonds with maturities of 2 years,...
19. A fixed-income portfolio is invested equally among three zero-coupon bonds with maturities of 2 years, 4 years, and 10 years. What is the approximate Macaulay duration of the portfolio? a) 7.25 b) 10 c) 5.33 d) none of the above. 20. A 15 year coupon bond, that makes payments annually, has a coupon rate of 5%. The market discount rate on the bond is 8%. If interest rates were to rise by 100 bps today, how long would it...
MLK Bank has an asset portfolio that consists of $100 million of 30-year bonds with 8...
MLK Bank has an asset portfolio that consists of $100 million of 30-year bonds with 8 percent coupon rate (coupons are paid annually) and $1,000 face value selling at par. a) What will be the bonds’ new prices if market yields change immediately by ± 0.05 percent? What will be the new prices if market yields change immediately by ± 1.00 percent? b) The duration of these bonds is 12.1608 years. What are the predicted new bond prices in each...
Jo Bond is a fixed income portfolio manager. He has the following investment alternatives: a. BB...
Jo Bond is a fixed income portfolio manager. He has the following investment alternatives: a. BB Corporate-BB bond with a coupon rate of 5%. This bond is trading at $ 925.       Jo expects an increase of 40% in the price of this bond. b. BB Corporate-CC bond, selling for $ 850 with a 6% coupon rate. Target price is      par.       More important info:      Jo investment horizon is 5 years. BB and CC bonds have the same duration....
Suppose you own following bond portfolio Face Value Bond Type Maturity yield to maturity Portfolio I...
Suppose you own following bond portfolio Face Value Bond Type Maturity yield to maturity Portfolio I $88 million Zero Coupon 5 years 4% You expect interest rate to rise in near future(hence decrease the value of bond portfolio). You decided to sell some of 5-year bond and use that proceed to buy 1.5-year zero coupon bonds with yield to maturity 3%. If you want new duration of the portfolio to be 3 years (that mean after selling 5-year bond and...
Bond valuation—Semiannual interest    Calculate the value of each of the bonds shown in the following​ table,...
Bond valuation—Semiannual interest    Calculate the value of each of the bonds shown in the following​ table, all of which pay interest semiannually.  ​ Bond Par Value Coupon interest rate Years to maturity Required stated annual return A ​$1,000 9 ​% 9 8 ​% B 500 13 20 14 C 500 15 6 15
Jaime Bond is a fixed income portfolio manager. He has the following investment alternatives: a. AA...
Jaime Bond is a fixed income portfolio manager. He has the following investment alternatives: a. AA Corporate-Alegre Vengo bond with a coupon rate of 5%. This bond is trading at $ 925.       Jaime expects an increase of 40% in the price of this bond. b. AA Corporate-de La Montana bond, selling for $ 850 with a 6% coupon rate. Target price is      par.       More important info:      Jaime investment horizon is 5 years. Alegre Vengo and De La...
Setup B: George, a bond portfolio manager, owns the following four bonds with a combined market...
Setup B: George, a bond portfolio manager, owns the following four bonds with a combined market value of $20 million. The bond portfolio’s yield to maturity is 7.00 percent. When the government releases new economic numbers tomorrow, George believes yield to maturities will increase 100 basis points as there will be a parallel shift in yield curve. Bond Market Value Duration (Years) A $2 million 2.0 B $5 million 3.0 C $6 million 4.0 D $7 million 5.0 Total $20...
An FI has a $100 million portfolio of six-year Eurodollar bonds that have an 8 percent...
An FI has a $100 million portfolio of six-year Eurodollar bonds that have an 8 percent coupon. The bonds are trading at par and have a duration of five years. The FI wishes to hedge the portfolio with T-bond options that have a delta of –0.625. The underlying long-term Treasury bonds for the option have a duration of 10.1 years and trade at a ­market value of $96,157 per $100,000 of par value. Each put option has a premium of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT