sider the following three-bond portfolio in which all the bonds are option free: Bond Price Par Value Yield Market Value Duration 9% 5-year $122.4565 $5 million 4% $6,122,823 4.142 5% 20-year $113.6777 $2 million 4% $2,273,555 13.087 5.5% 30-year $126.0707 $2 million 4% $2,521,413 16.290 What is Bond 1’s (9% 5-year) contribution to portfolio du
sider the following three-bond portfolio in which all the bonds are option free: Bond Price Par Value Yield Market Value Duration 9% 5-year $122.4565 $5 million 4% $6,122,823 4.142 5% 20-year $113.6777 $2 million 4% $2,273,555 13.087 5.5% 30-year $126.0707 $2 million 4% $2,521,413 16.290 What is Bond 1’s (9% 5-year) contribution to portfolio du
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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Question
Consider the following three-bond portfolio in which all the bonds are option free:
|
|
Price |
Par Value |
Yield |
Market Value |
Duration |
|
9% 5-year |
$122.4565 |
$5 million |
4% |
$6,122,823 |
4.142 |
|
5% 20-year |
$113.6777 |
$2 million |
4% |
$2,273,555 |
13.087 |
|
5.5% 30-year |
$126.0707 |
$2 million |
4% |
$2,521,413 |
16.290 |
What is Bond 1’s (9% 5-year) contribution to portfolio duration?
| A. |
3.23 |
|
| B. |
2.33 |
|
| C. |
4.33 |
|
| D. |
3.00 |
Expert Solution
Step 1
The duration of portfolio is weighted average duration of portfolio of bonds depending on the market value of the bond and more is the value of bond more is the weight of bonds duration.
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