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5. Bond Portfolio Management Consider two bonds And BF $100 par, the modified duration of 4 for bood A nd for value of bond A.

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5. Bond Portfolio Management Consider two bonds And BF $100 par, the modified duration of 4 for bood A nd for value of bond A. 1) What is the dollar duration per 100 basis le 0.01x20 /100 for bond A p ar, the market value is $120 for bond A and 5110 for bood. The for bond B. Suppose that a portfolio manager Own Simon duration per 100 basis of A l l of par le 420.01x120 /100) - OOH ID) If the portfolio manager wants to trade rate risk exposure for her portt nager wants to trade the million value of bond A for bond B so that the posure for her portfolio does not change what should be the market value of bond B 6. Interest-rate Futures Contract Consider two institutions X and Y Institution X nas s 50% and receives LIBOR + 1.00%, while institution pays LIBOR +0.25% and receives 6.00%. iv) What is the risk facing each institution? v) Assuming a swap of 5.00% against the LIBOR. How can both institutions use it to hedge their risk? vi) What will be the outcome for each institution? 5. Bond Portfolio Management Consider two bonds And BF $100 par, the modified duration of 4 for bood A nd for value of bond A. 1) What is the dollar duration per 100 basis le 0.01x20 /100 for bond A p ar, the market value is $120 for bond A and 5110 for bood. The for bond B. Suppose that a portfolio manager Own Simon duration per 100 basis of A l l of par le 420.01x120 /100) - OOH ID) If the portfolio manager wants to trade rate risk exposure for her portt nager wants to trade the million value of bond A for bond B so that the posure for her portfolio does not change what should be the market value of bond B 6. Interest-rate Futures Contract Consider two institutions X and Y Institution X nas s 50% and receives LIBOR + 1.00%, while institution pays LIBOR +0.25% and receives 6.00%. iv) What is the risk facing each institution? v) Assuming a swap of 5.00% against the LIBOR. How can both institutions use it to hedge their risk? vi) What will be the outcome for each institution

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