4. Consider the following bond portfolio: Bond Value Maturity A B C $300 million 300 400 3 years 4 8 Coupon 0% 6 0 Yield 10% 10 10 a) What is the bond portfolio's duration? b) Calculate the capital loss on this portfolio if the yield increases from 10 to 12 percent. c) Suppose the portfolio is to be immunized over an investment horizon of approximately 5.19 years. Determine the market value of the immunized portfolio at the end of 5.19 years.
4. Consider the following bond portfolio: Bond Value Maturity A B C $300 million 300 400 3 years 4 8 Coupon 0% 6 0 Yield 10% 10 10 a) What is the bond portfolio's duration? b) Calculate the capital loss on this portfolio if the yield increases from 10 to 12 percent. c) Suppose the portfolio is to be immunized over an investment horizon of approximately 5.19 years. Determine the market value of the immunized portfolio at the end of 5.19 years.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Consider the following bond portfolio:
Coupon
Bond
Value
Maturity
Yield
A
$300 million
3 years
0%
10%
В
300
4
6.
10
400
8
10
a) What is the bond portfolio's duration?
b) Calculate the capital loss on this portfolio if the yield increases from 10 to 12 percent.
c) Suppose the portfolio is to be immunized over an investment horizon of approximately
5.19 years. Determine the market value of the immunized portfolio at the end of 5.19
years.
4.
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