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1.Suppose that the initial value of an unlevered portfolio of Treasury securities is $200 million and the duration is 7. Suppose further that the manager
1.Suppose that the initial value of an unlevered portfolio of Treasury securities is $200 million and the duration is 7. Suppose further that the manager can borrow $800 million and invest it in the identical Treasury securities so that the levered portfolio has a value of
$1 billion. What is the duration of the levered portfolio? What is the duration of the unlevered portfolio (i.e., the duration of the equity)?
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