A portfolio contains three bonds. Bond A comprises 40% of the portfolio, has a 5% annual coupon, matures in 4 years from today, and is currently yielding 3.37%. Bond B comprises 35% of the portfolio, has a 4% annual coupon, matures in 5 years from today, and is currently yielding 3.51%. Bond C comprises 25% of the portfolio, is a zero-coupon bond, matures in 4.5 years from today, and is currently yielding 3.79%. All rates are expressed on an effective annual basis. Assume that the yield differences are purely on account of the differences in the credit quality of the bonds, and the general interest rate curve is flat. A Treasury bond maturing in 4 years from today, carrying an annual coupon of 1.73%, and currently trading at par is available for duration-hedging purposes. What is the Macaulay duration of the 100% duration-hedged portfolio?

A portfolio contains three bonds. Bond A comprises 40% of the portfolio, has a 5% annual coupon, matures in 4 years from today, and is currently yielding 3.37%. Bond B comprises 35% of the portfolio, has a 4% annual coupon, matures in 5 years from today, and is currently yielding 3.51%. Bond C comprises 25% of the portfolio, is a zero-coupon bond, matures in 4.5 years from today, and is currently yielding 3.79%. All rates are expressed on an effective annual basis. Assume that the yield differences are purely on account of the differences in the credit quality of the bonds, and the general interest rate curve is flat. A Treasury bond maturing in 4 years from today, carrying an annual coupon of 1.73%, and currently trading at par is available for duration-hedging purposes. What is the Macaulay duration of the 100% duration-hedged 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

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 17P: Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4...

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