Question

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.

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

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 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

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is 15 years, and you can choose from two bonds: a zero-coupon bond
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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
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How will these fractions change next year if target
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a) 7.25
b) 10
c) 5.33
d) none of the above.
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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
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3) The Macaulay duration of a bond portfolio is 6.23 years,
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Increase by 18.55%
Decrease by 18.55%
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Decrease by 16.39%

You plan to form a portfolio by investing in a 6-year
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Bad Wolf Enterprises issues $1 million in 11.4% bonds maturing
November 6, 2027. The bond is callable November 6, 2019 at a call
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If Bad Wolf Enterprises calls the entire issue and replaces it
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