(A) An investor has the following bond portfolio: Semi Annual Coupon Face Value (pa) Bond A US$2,000,000 10 Bond B US$4,500,000 3 Bond C US$3,500,000 6.5 Bond D US$7,000,000 0 US$17,000,000 Maturity (Yrs) 6 5 1 12 Semi Annual Yield (pa) 7.4 6.6 8 5 (1) What is the portfolio Macaulay duration? (4 Marks) (ii) The interest rate outlook expects to increase so the investor decides to reduce the portfolio to a target Macaulay duration of 3. The investor decides to keep the weighting on Bond C and Bond A, how much Bond B and Bond D do the investor need to "change" in order to meet the target? (7 Marks) (iii) Instead of (ii), the investor has a choice to keep all the bond portfolio and only to replace Bond A by one of the following three bonds issued by the same issuer to decrease portfolio duration. Annual Credit Semi Annual Coupon Maturity Semi Annual Yield Maculary Rating (%pa) (Yrs) (pa) Duration Bond X AA 10 6 4.5 3 Bond AAA 10 4.5 3 Bond Z 10 6 3 Y 4.5 Explain which of these 3 bonds will the investor choose to have the best protective impact on interest rate increase