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a. Portfolio = $1,000,000, 90% in equity earning 12%, 40% in Fixed Income = $125,000 earning 2.5% [ note 90% + 40% > 100%, there
a. Portfolio = $1,000,000, 90% in equity earning 12%, 40% in Fixed Income = $125,000 earning 2.5% [ note 90% + 40% > 100%, there is a margin here, assume the cost of margin is 6.5%]. Calculate the FV in 5 years.
b. A bond YTM is 5%, coupon is 9%, term is 10 years semiannual. Calculate the effective duration. Assume the yield rises by 60 bps, provide the duration-based change in bond price and actual calculator-based price. Calculate and explain the error.
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