Question

A bond portfolio is made up of $14 million in zero-coupon bonds maturing in 2 years,...

A bond portfolio is made up of $14 million in zero-coupon bonds maturing in 2 years, and $9 million in zero-coupon bonds maturing in 24 years. The yield curve is flat at 8%. What is the Macaulay duration of this bond portfolio? Please enter your answer in years rounded to two decimal places.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Duration of the portfolio measures the sensitivity of the portfolio when the interest rate changes

Macaulay Duration of the zero coupon bond is equal to years left to maturity.

Duration of $14 million zero coupon bond(A) = 2 years

Duration of $9 million zero coupon bond(B) = 24 years

Weight of A = $14 million/ ($14 million+$9 million) = 0.609

Weight of B = $9 million/ ($14 million+$9 million) = 0.391

Duration of portfolio = (Weight of A*Duratio of A) + (Weight ot B*Duration of B)

= (0.609*2)+(0.391*24)

= 1.218+9.384

= 10.608

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
There are two bonds in a portfolio. One is a 5-year zero-coupon bond with a face...
There are two bonds in a portfolio. One is a 5-year zero-coupon bond with a face value of $5,000, the other is a 10-year zero-coupon bond with a face value of $10,000. The Macaulay Duration of the portfolio is 7.89, the Modified Duration of the portfolio is 7.3015. If the price of the 10-year bond is $3,999, what is the answer that is closest to the yield to maturity of the 5-year bond
10. Assume you have a portfolio comprising 5 zero-coupon bonds that have 2 years to maturity...
10. Assume you have a portfolio comprising 5 zero-coupon bonds that have 2 years to maturity and 6 zero-coupon bond with a maturity of 20 years. Assuming semi-annual compounding and that all bonds have a face value of 100 and that the yield curve is flat at 5% pa, what is the modified duration of this portfolio? Group of answer choices None of the answers provided are correct 7.752 13.711 10.732 7.609
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...
You are managing a portfolio of $2 million. Your target duration is 15 years, and you...
You are managing a portfolio of $2 million. Your target duration is 15 years, and you can choose from two bonds: a zero-coupon bond with maturity 5 years, and a perpetuity, each currently yielding 5%. Required: (a) How much of each bond will you hold in your portfolio? (Round your answers to 4 decimal places.)   Zero-coupon bond      Perpetuity bond    (b) How will these fractions change next year if target duration is now fourteen years? (Round your answers to...
You are managing a portfolio of $1.3 million. Your target duration is 10 years, and you...
You are managing a portfolio of $1.3 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity 5 years, and perpetuity, each currently yielding 8%. a. How much of each bond will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Zero-coupon bond % Perpetuity bond % b. How will these fractions change next year if the target duration is now twelve years?...
Betty and Bob a 2-year coupon bond with a face and maturity value of $1,000 and...
Betty and Bob a 2-year coupon bond with a face and maturity value of $1,000 and a coupon rate of 8% per annum payable semiannually and a yield to maturity of 10% per annum compounded semiannually. A. Algebraically find the price of the bond. Your final answer should be correct to 2 places after the decimal point. The price of the portfolio is __________________. B. Algebraically find the exact Macaulay Duration of the portfolio. Your final answer should be correct...
You are managing a portfolio of $1.9 million. Your target duration is 11 years, and you...
You are managing a portfolio of $1.9 million. Your target duration is 11 years, and you can choose from two bonds: a zero-coupon bond with maturity 5 years, and a perpetuity, each currently yielding 5%. Required: (a) How much of each bond will you hold in your portfolio? (Round your answers to 4 decimal places.)   Zero-coupon bond      Perpetuity bond    (b) How will these fractions change next year if target duration is now ten years? (Round your answers to...
3) The Macaulay duration of a bond portfolio is 6.23 years, (assuming they pay coupon annually)...
3) The Macaulay duration of a bond portfolio is 6.23 years, (assuming they pay coupon annually) and the yield to maturity of the bond portfolio is 14%. What is the approximate change in the value of the bond if interest rates increase by 3 percentage points (3%)? Increase by 18.55% Decrease by 18.55% Increase by 16.39% Decrease by 16.39%
You plan to form a portfolio by investing in a 6-year zero-coupon bond and a 3-year...
You plan to form a portfolio by investing in a 6-year zero-coupon bond and a 3-year 6% annual coupon bond with a yield to maturity of 10%. The target duration of this portfolio is 4 years. Therefore, ________ of the portfolio value should be allocated to the zero-coupon bond. A) 37.1% B) 62.9% C) 83.33% D) 24%
Bad Wolf Enterprises issues $1 million in 11.4% bonds maturing November 6, 2027. The bond is...
Bad Wolf Enterprises issues $1 million in 11.4% bonds maturing November 6, 2027. The bond is callable November 6, 2019 at a call premium of 5%. November 6, 2019 the prevailing yield is 6%. If Bad Wolf Enterprises calls the entire issue and replaces it with 6% bonds also maturing November 6, 2027 then the present value of the decrease in coupon payments is how much? (positive number rounded $ to two places after the decimal)
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT