(b) An investor invested his wealth into three bonds for 7 years. The following table shows the market data of these three bonds: Market Price Macaulay Duration 3.19 93.26 108.04 105.91 Modified Convexity 11.77 Bond A 6.19 44.57 Bond B Bond C 8.52 83.11 The term structure is assumed to be flat and the annual effective interest rate is currently 3.2%. Suppose that the investor has $50000 initially and he invests 40% of capital in bond A, 25% of capital in Bond B and 35% in bond C. Estimate the IRR of the bond investment if the future interest rate becomes i = 4%.
(b) An investor invested his wealth into three bonds for 7 years. The following table shows the market data of these three bonds: Market Price Macaulay Duration 3.19 93.26 108.04 105.91 Modified Convexity 11.77 Bond A 6.19 44.57 Bond B Bond C 8.52 83.11 The term structure is assumed to be flat and the annual effective interest rate is currently 3.2%. Suppose that the investor has $50000 initially and he invests 40% of capital in bond A, 25% of capital in Bond B and 35% in bond C. Estimate the IRR of the bond investment if the future interest rate becomes i = 4%.
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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![(b) An investor invested his wealth into three bonds for 7 years. The following table
shows the market data of these three bonds:
Market Price
Modified
Convexity
11.77
Macaulay
Duration
Bond A
93.26
3.19
108.04
6.19
44.57
Bond B
Bond C
105.91
8.52
83.11
The term structure is assumed to be flat and the annual effective interest rate is
currently 3.2%.
Suppose that the investor has $50000 initially and he invests 40% of capital in
bond A, 25% of capital in Bond B and 35% in bond C. Estimate the IRR of the
bond investment if the future interest rate becomes i = 4%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb71674b3-925d-4658-b4de-e85d03d4b682%2F42662954-34f5-49da-aa60-48dc7d7a9680%2Fejsbrqe_processed.jpeg&w=3840&q=75)
Transcribed Image Text:(b) An investor invested his wealth into three bonds for 7 years. The following table
shows the market data of these three bonds:
Market Price
Modified
Convexity
11.77
Macaulay
Duration
Bond A
93.26
3.19
108.04
6.19
44.57
Bond B
Bond C
105.91
8.52
83.11
The term structure is assumed to be flat and the annual effective interest rate is
currently 3.2%.
Suppose that the investor has $50000 initially and he invests 40% of capital in
bond A, 25% of capital in Bond B and 35% in bond C. Estimate the IRR of the
bond investment if the future interest rate becomes i = 4%.
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