3. Key rate duration I have a portfolio of two fixed rate bonds. Bond A is a 2 year, $100 par value US govt bond, coupon=5% (per annum), payable annually. Bond B is a 4 year, $100 par value US govt bond, coupon=6% (per annum), payable annually. Assume the relevant term structure from the price of US government STRIPS is : d(1Y)=0 .95 d(2Y)=0.91 d(3Y)= 0.87 d(4Y)= 0.83

a. What are the relevant nonzero key rate durations for Bond A ?

b. What are the relevant nonzero key rate durations for Bond B ?

c. What are the relevant nonzero key rate durations for the entire portfolio ? Note: You may need to refer to the result for Fisher-Weil duration of a portfolio of bonds in question 4 below, and make an educated guess here.

d. What is the Fisher-Weil duration Bond A, Bond B, and the entire portfolio ?