A bond fund manager is evaluating the funds holding of various categories of bonds:

(i) Calculate the bond portfolios current Macaulay duration and modified duration. (ii) What is the approximate value of the portfolio if indeed the interest rate suddenly falls to 9% as expected? (iii) Suggest a strategy that the bond manager might adopt if he expects interest rates to fall even further to 9% across all maturities.

Bond Category A B D E Total market value $50 million $100 million $50 million $100 million $200 million Macaulay Duration 1 year 3 years 5 years yields to maturity Current Expected 10% 9% 10% 9% 10% 9% 10% 9% 10% 9% 7 years 12 years