Jasmine May is a 45-year-old academic dean who has just inherited a large sum of money. Having knowledge on investment, she's well aware of the concept of duration and decides to apply it to her bond portfolio. In particular, Jasmine intends to use P1 million of her inheritance to purchase Treasury bonds, she is considering four bonds: a. An 8. 5%, 13-year bond that's priced at P1, 045 to yield 7. 47% b. A 7.875%, 15-year bond that's priced at P1, 020 to yield 7. 60% c. A 20-year stripped Treasury that's priced at P202 to yield 8. 22% d. A 24-year, 7.5% bond that's priced at P955 to yield 7. 90%

Jasmine May is a 45-year-old academic dean who has just inherited a large sum of money. Having knowledge on investment, she's well aware of the concept of duration and decides to apply it to her bond portfolio. In particular, Jasmine intends to use P1 million of her inheritance to purchase Treasury bonds, she is considering four bonds: a. An 8. 5%, 13-year bond that's priced at P1, 045 to yield 7. 47% b. A 7.875%, 15-year bond that's priced at P1, 020 to yield 7. 60% c. A 20-year stripped Treasury that's priced at P202 to yield 8. 22% d. A 24-year, 7.5% bond that's priced at P955 to yield 7. 90%

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter11: Property Dispositions

Section: Chapter Questions

Problem 52P

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May is a 45-year-old academic dean who has just inherited a large sum of money. Having knowledge on investment, she’s well aware of theconcept of duration and decides to apply it to her bond portfolio. In particular, Jasmine intends to use P1 million of her inheritance to purchase Treasury bonds, she is considering four bonds:a. An 8.5%, 13-year bond that’s priced at P1,045 to yield 7.47%b. A 7.875%, 15-year bond that’s priced at P1,020 to yield 7.60%c. A 20-year stripped Treasury that’s priced at P202 to yield 8.22%d. A 24-year, 7.5% bond that’s priced at P955 to yield 7.90% Find the duration and the modified duration of each bond. Find the duration of the whole bond portfolio if Jasmine puts P250,000 into each of the four Treasury bonds. Find the duration of the portfolio if Jasmine puts P360,000 each into bonds a and c and P140,000 each into bonds b and d. Which portfolio—2 or 3—should Jasmine select if she thinks rates are about to head up and she wants to avoid as much price…
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