2. Today is September 15, 2021, and the current, semi-annually compounded yield curve is in Table II. We know that the semiannually compounded interest rate a quarter ago was 6.24%. An investor is planning a $100 million short-term investment and is going to choose among two different portfolios. Portfolio A: 40% invested in 4-year bonds paying 5% semiannually 25% invested in 7-year bonds paying 2.5% semiannually 20% invested in 1-year floating rate bonds with a 30 basis point spread, paying semiannually 10% invested in 1-year zero coupon bonds 5% invested in 2-year bonds paying 3% quarterly Portfolio B: 40% invested in 7-year bonds paying 10% semiannually 25% invested in 4-year bonds paying 3% quarterly 20% invested in 90-day zero coupon bonds 10% invested in 2-year floating rate bonds with zero spread, paying semiannually 5% invested in 1-year bonds paying 6% semiannually (a) This investor is seriously worried about interest rate volatility in the market. Compute the duration of the two portfolios. (b) What is PV01 for each portfolio? (use million dollar as units) (c) Based on your calculation, which portfolio is more adequate for the investor's objective? Table II: Semi-annually Compounded Yield Curve on September 15, 2021 Maturity Yield Maturity Yield Maturity Yield 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 6.33% 6.49% 6.62% 6.71% 6.79% 6.84% 6.87% 6.88% 6.89% 6.88% 2.75 3.00 3.25 3.50 3.75 4.00 4.25 4.50 4.75 5.00 6.86% 6.83% 6.80% 6.76% 6.72% 6.67% 6.62% 6.57% 6.51% 6.45% 5.25 5.50 5.75 6.00 6.25 6.50 6.75 7.00 7.25 7.50 6.39% 6.31% 6.24% 6.15% 6.05% 5.94% 5.81% 5.67% 5.50% 5.31% Yields calculated based on data from CRSP (Daily Treasuries). 2. Today is September 15, 2021, and the current, semi-annually compounded yield curve is in Table II. We know that the semiannually compounded interest rate a quarter ago was 6.24%. An investor is planning a $100 million short-term investment and is going to choose among two different portfolios. Portfolio A: 40% invested in 4-year bonds paying 5% semiannually 25% invested in 7-year bonds paying 2.5% semiannually 20% invested in 1-year floating rate bonds with a 30 basis point spread, paying semiannually 10% invested in 1-year zero coupon bonds 5% invested in 2-year bonds paying 3% quarterly Portfolio B: 40% invested in 7-year bonds paying 10% semiannually 25% invested in 4-year bonds paying 3% quarterly 20% invested in 90-day zero coupon bonds 10% invested in 2-year floating rate bonds with zero spread, paying semiannually 5% invested in 1-year bonds paying 6% semiannually (a) This investor is seriously worried about interest rate volatility in the market. Compute the duration of the two portfolios. (b) What is PV01 for each portfolio? (use million dollar as units) (c) Based on your calculation, which portfolio is more adequate for the investor's objective? Table II: Semi-annually Compounded Yield Curve on September 15, 2021 Maturity Yield Maturity Yield Maturity Yield 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 6.33% 6.49% 6.62% 6.71% 6.79% 6.84% 6.87% 6.88% 6.89% 6.88% 2.75 3.00 3.25 3.50 3.75 4.00 4.25 4.50 4.75 5.00 6.86% 6.83% 6.80% 6.76% 6.72% 6.67% 6.62% 6.57% 6.51% 6.45% 5.25 5.50 5.75 6.00 6.25 6.50 6.75 7.00 7.25 7.50 6.39% 6.31% 6.24% 6.15% 6.05% 5.94% 5.81% 5.67% 5.50% 5.31% Yields calculated based on data from CRSP (Daily Treasuries)