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3. Portfolio A consists of a three-year zero-coupon bond with a face value of $5,000 and a 15-year zero-coupon bond with a face value of
3. Portfolio A consists of a three-year zero-coupon bond with a face value of $5,000 and a 15-year zero-coupon bond with a face value of $12,000. Portfolio B consists of a 6-year zero-coupon bond with a face value of $7,000. The current yield on all bonds is 10% per annum (continuously compounded).
(a) Compute the durations of each portfolio.
(b) Compute the % changes in the values of the two portfolios for a 0.1% per annum increase in yields.
(c) What are the percentage changes in the values of the two portfolios for a 7% per annum increase in yields?
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