Part 2: Numerical Questions - 30 points (ELO 1 and 3) Assignment 4 (10 points) Portfolio A consists of a one-year zero-coupon bond with a face value of AAAA and a 5- year zero-coupon bond with a face value of BBBB. Portfolio B consists of a X-year zero-coupon bond with a face value of 6,000. The current yield on all bonds is 4.5% per annum (continuously compounded). You are requested to show detailed calculations. 4.1 Choose your own estimates for the different values of AAAA and BBBB (between 1000 and 10000). 4.2 Knowing that both portfolios have the same duration, what is the maturity X of portfolio B? 4.3 Show that the percentage changes in the values of the two portfolios for a 0.1% per annum increase in yields are the same. 4.4 What are the percentage changes in the values of the two portfolios for a 10% per annum increase in yields? 4.5 What are the convexities of the portfolios? 4.6 To what extent do duration and convexity explain the difference between the percentage changes calculated?

Part 2: Numerical Questions - 30 points (ELO 1 and 3) Assignment 4 (10 points) Portfolio A consists of a one-year zero-coupon bond with a face value of AAAA and a 5- year zero-coupon bond with a face value of BBBB. Portfolio B consists of a X-year zero-coupon bond with a face value of 6,000. The current yield on all bonds is 4.5% per annum (continuously compounded). You are requested to show detailed calculations. 4.1 Choose your own estimates for the different values of AAAA and BBBB (between 1000 and 10000). 4.2 Knowing that both portfolios have the same duration, what is the maturity X of portfolio B? 4.3 Show that the percentage changes in the values of the two portfolios for a 0.1% per annum increase in yields are the same. 4.4 What are the percentage changes in the values of the two portfolios for a 10% per annum increase in yields? 4.5 What are the convexities of the portfolios? 4.6 To what extent do duration and convexity explain the difference between the percentage changes calculated?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 14P: Current Yield with Semiannual Payments A bond that matures in 7 years sells for $1,020. The bond has...

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