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Without doing any calculations, which bond would have a higher duration                              Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration.                               Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the portfolio.

Without doing any calculations, which bond would have a higher duration                              Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration.                               Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the portfolio.

Essentials Of Investments
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
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Bond A

Bond B

Years to maturity

5 years

10 years

Coupon rate

5%

5%

Par value

1000

1000

Yield to maturity

8%

6%

Par amount owned

R3,45 million

R2 million

Market value

R30 367.59 (in 000’s)

R18 528 (in 000’s)

 

Required:

  1. Without doing any calculations, which bond would have a higher duration                             
  2. Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration.                              
  3. Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the portfolio.
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