A portfolio manager is assessing the interest rate risk of three bonds as she considers making an investment of USD50 million. All three bonds are issued on 1 June 2026 and mature on 1 June 2030, and they have the following characteristics: Characteristic Bond One Bond Two Bond Three Coupon (semiannual) 7% 3% 5% Yield - to - maturity 3% 7% 5% Question Q. The portfolio manager is interested in comparing the interest rate risk of Bond Three to that of Bond Four, a floating - rate note that resets every six months. On 1 June 2026, both bonds were priced to yield 5%. If the yield changes from 5% to 5.25% halfway through the first coupon period, which bond has the greater Macaulay duration? Bond Three Bond Four Neither: The Macaulay duration is the same for both bonds. Please explain in detail how 0.5 for Bond 4 can be calculated easily
A portfolio manager is assessing the interest rate risk of three bonds as she considers making an investment of USD50 million. All three bonds are issued on 1 June 2026 and mature on 1 June 2030, and they have the following characteristics: Characteristic Bond One Bond Two Bond Three Coupon (semiannual) 7% 3% 5% Yield - to - maturity 3% 7% 5% Question Q. The portfolio manager is interested in comparing the interest rate risk of Bond Three to that of Bond Four, a floating - rate note that resets every six months. On 1 June 2026, both bonds were priced to yield 5%. If the yield changes from 5% to 5.25% halfway through the first coupon period, which bond has the greater Macaulay duration? Bond Three Bond Four Neither: The Macaulay duration is the same for both bonds. Please explain in detail how 0.5 for Bond 4 can be calculated easily
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:A portfolio manager is assessing the interest rate risk of three bonds as she considers making an investment of
USD50 million. All three bonds are issued on 1 June 2026 and mature on 1 June 2030, and they have the
following characteristics: Characteristic Bond One Bond Two Bond Three Coupon (semiannual) 7% 3% 5%
Yield - to - maturity 3% 7% 5% Question Q. The portfolio manager is interested in comparing the interest rate
risk of Bond Three to that of Bond Four, a floating - rate note that resets every six months. On 1 June 2026, both
bonds were priced to yield 5%. If the yield changes from 5% to 5.25% halfway through the first coupon period,
which bond has the greater Macaulay duration? Bond Three Bond Four Neither: The Macaulay duration is the
same for both bonds. Please explain in detail how 0.5 for Bond 4 can be calculated easily
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