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…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 21P

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?
Consider a portfolio comprise of three securities in the following proportion and with the indicated securities beta. Security Amount Invested Beta Expected return A 1.5million 1.0 12% B 1million 1.5 13.5% C 2million 0.8 9% Calculate the portfolio’s; Beta Expected return Determine whether this portfolio have more or less systematic risk than an average asset.
Considering the attached set of securities and portfolio returns: Find the combination of the weights that minimizes CV of the portfolio. How does the CV of the optimal portfolio compare with the CVs of its constituents?
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 + $D₂ D. ModDp R₁ + P₂ dP dP₂ + dy dy Portfolio E. ModD Portfolio = = P₁+P₂ Portfolio
CASE 3 (6 marks): The following graph shows the efficient frontier for the portfolio containing x, y and z securities EFFICIENT FRONTIER 0.00525 D 0.00475 В A 0.00425 W 0,00375 0.00325 0.00275 0.006 0.0065 0.007 0.0075 0.008 0.0085 op 3 а) Which combination of the portfolio is most efficient or the closest to optimal, A, B, C or D and why? Additionally, explain the difference between each of these portfolios. 3 b) If the star represents portfolio E, is it better than B? Explain why or why not. 3 c) If the triangle represents portfolio F, is it better than C? D? Explain why or why not. ERP
2 The rate of return earned on a bond if it is held until maturity is its: Group of answer choices sinking fund yield. yield-to-maturity. coupon payment. yield-to-call.
Weighted average yield and Yield to Maturity (YTM) as yield measures for a portfolio of bonds. Explain the pros and cons of both measures of yield for a portfolio.
Consider a portfolio consisting of the below securities with the below characteristics: Security Amount Invested($) Beta Expected Return A 1,5 MIL 1.0 12.0%B 1.0 MIL 1.5 13.5%C 2.0 MIL 0.8 9.0% Required:a) Calculate the portfolio’s Beta. b) Calculate the portfolio’s expected return. c) Discuss the Capital Asset Pricing Model (CAPM) explaining what it is used forand which are its limitations.
Show detailed steps to solve the following question. Consider a portfolio comprised of three securities in the following proportions and with the indicated security beta. a.) What is the portfolios beta? b.) Wht is the portfolios expected return?

SEE MORE QUESTIONS

Recommended textbooks for you

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

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

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

SEE MORE TEXTBOOKS