onsider the following two-bond portfolio of option-free bonds; 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: a) Without doing any calculations, which bond would have a higher duration b) Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration. c) Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the portfolio.
onsider the following two-bond portfolio of option-free bonds; 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: a) Without doing any calculations, which bond would have a higher duration b) Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration. c) Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the 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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Consider the following two-bond portfolio of option-free bonds;
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:
a) Without doing any calculations, which bond would have a higher duration
b) Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration.
c) Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the portfolio.
Requires:
Macauly's Duration
Modified Duration
Weight Bond A
Weight Bond B
Portfolio Duration
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