Question
A portfolio manager owns $25 million par value of bond ABC. The bond is trading at 80 and has a modified duration of 7.5. The
A portfolio manager owns $25 million par value of bond ABC. The bond is trading at 80 and has a modified duration of 7.5. The portfolio manager is considering swapping out of bond ABC and into bond XYZ. The price of this bond is 85 and it has a modified duration of 5.5.
(b) What is the dollar duration for the $25 million position of bond ABC?
(c) How much in market value of bond XYZ should be purchased so that the dollar duration of bond XYZ will be approximately the same as that for bond ABC?
(d) How much in par value of bond XYZ should be purchased so that the dollar duration of bond XYZ will be approximately the same as that for bond ABC?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Analysis for Financial Management
Authors: Robert Higgins
11th edition
77861787, 978-0077861780
