Assume that as an investment manager at Oman investment fund; you hold a large bond portfolio of Omani government bonds (long term) and T-bills (short-terms). The interest rates are currently falling due to Covid-19. a. How your bond portfolio would be affected by falling interest rates?     b. How your t-bills portfolio would be affected by falling interest rates?     c. Which portfolio is more sensitive

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Assume that as an investment manager at Oman investment fund; you hold a large bond portfolio of Omani government bonds (long term) and T-bills (short-terms). The interest rates are currently falling due to Covid-19.

a. How your bond portfolio would be affected by falling interest rates?

 

 

b. How your t-bills portfolio would be affected by falling interest rates?

 

 

c. Which portfolio is more sensitive

Expert Solution
Step 1

The relationship between the price and interest rate is indirect.

When interest rate is increased, price of the bond will decrease.

When interest rate is decreased, price of the bond will increase.

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