Please correct answer and don't use hand rating Problem 3: The duration of a portfolio of bonds is just the weighted average of the durations of thebonds in the portfolio, where the weight on a particular bond is the fraction of the value of the portfoliothat comes from that particular bond; the weight sum to 1. Consider the following information on 4bonds:Bond1Duration226101534Consider the following three portfolios (the portfolios differ by the amount of current value in eachbond); the data below shows the current values in each of the bonds for each of the portfolios.PortfolioABCCurrent values in each bondBond 1$1MBond 2$1MBond 3Bond 4$1M$1M$2M00$2M0$1.75M2.25M0Which of these three portfolios has the most interest rate risk?

Portfolio A:Weighted average duration = (1M * 2 + 1M * 6 + 1M * 10 + 1M * 15) / (1M + 1M + 1M + 1M)…

Answered: Problem 3: The duration of a portfolio…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 2MC

See similar textbooks

Similar questions

30. portfolio duration is a. the average of the duration of the component bonds in the portfolio b. the sum of the duration of the component bonds in the portfolio c. the weighted duration of the component bonds in the portfolio e. none
A bond porfolio composition and spread durations of its components is listed in the table below: Sector % of portfolio (%) Spread duration Agencies 22.9 5.89 Industrials 19.1 8.11 Utilities 15.9 4.53 Financials 18.6 4.88 Treasury remainder 0.00 What is the portfolio's spread duration? EXCEL PLEASE
Under the current market conditions Bond 1 has a price of 90 and a Mccauley duration of 10, and Bond 2 has a price of 110 and Macauley duration of 15. A portfolio is created with a combination of face amount F₁ of Bond 1 and F2 of Bond 2. The combined face amount of the portfolio is F1+F2= 100, and the Macauley duration of the portfolio is 12.5. Set up the equations for finding the portfolio value X. (a) 15X9F1 + 16.5(100-F₁), X=9F₁+1.1(100-F₁) (b) 12.5X9F1 +15(100-F₁), X= .9F₁ + 1.1(100-F₁) (c) 12.5X = 9F₁ + 16.5(100-F₁), X= .9F₁+1.1(100-F₁) (d) 12.5X = 10F₁ +16.5(100-F₁), X = .9F₁+1.1(100-F₁) (e) none of these
Can the price of bond B be determined using the PV function or any other function in excel? What is the EAR (effective annual rate) of these two bonds?
20. Assume there are two bonds in a bond portfolio. Bond 1 has a price of R₁, a Macaulay duration of MacD₁, a dollar duration of SD, and a modified duration of ModD, and a weight of w, in the portfolio. Bond 2 has a price of P₂, a Macaulay duration of MacD₂, a dollar duration of SD₂ and a modified duration of ModD, and a weight of w, in the portfolio. Assuming the yield curve is flat, and that the portfolio has a Macaulay duration of MacD Portfolio a dollar duration of SD Porfolio and a modified duration of ModD which of the following statements is incorrect? A. MacD Portfolio =W₁MacD₁+w₂MacD₂ B. ModD Portfolio = W₂ModD₂ +w₂ModD₂ C. SD Portfolio = ₁ SD + ₂D₂ $D₂ + $D₂ D. ModDp R₁ + P₂ dP dP₂ + dy dy Portfolio E. ModD Portfolio = = P₁+P₂ Portfolio
A bond's real rate of return is reflected by the bond's 1). YTM 2). Coupon Rate 3). Par Value 4). Selling Price 5). Redemption Value
Weighted average yield and Yield to Maturity (YTM) as yield measures for a portfolio of bonds. Explain the pros and cons of both measures of yield for a portfolio.
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio X Y Z Market Risk-free Rp 11.0% ор 33.00% 10.0 28.00 8.1 10.4 5.2 18.00 23.00 Ө вр 1.45 1.20 0.75 1.00 Ө Assume that the correlation of returns on Portfolio Y to returns on the market is 0.66. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. R-squared
important factors that affect the price volatility of a bond are options: A: The bonds coupon rate B: time to maturity of the bond C: Changes in the market interest rates D: All the above are correct E: Only A and B are correct
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio X Y Z Market Risk-free Rp 14.0% 13.0 .8.5 12.0 7.2 Ор 39.00% 34.00 24.00 29.00 0 Bp 1.50 1.15 0.90 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.90. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. R-squared
7. Explain in detail, in terms of current yield, capital gain yields and YTM, why: a) If YTM = coupon rate, bond price = par value? b) If YTM > coupon rate, then bond price < par value? c) IF YTM < coupon rate, then bond price > par value? AND also give the name of the bond in each scenario.
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: 8p 1.70 1.30 0.85 1.00 Portfolio X Y Z Market Risk-free Rp 11.5% 10.5 7.2 10.9 4.6 R-squared op 38.00% 33.00 23.00 28.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.76. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places.

SEE MORE QUESTIONS

Recommended textbooks for you

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Fundamentals of Financial Management, Concise Edi…

Finance

ISBN:

9781305635937

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Personal Finance

Finance

ISBN:

9781337669214

Author:

GARMAN

Publisher:

Cengage

Excel Applications for Accounting Principles

Accounting

ISBN:

9781111581565

Author:

Gaylord N. Smith

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS