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?
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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