A single-bond portfolio is worth $100 mn. What is the dollar profit/loss expected over the next year?

• Portfolio consists of 10-year, 3.5% coupon bonds ($100 par value) issued last year. The market yield at the time of issuance was 2.5%. The yield curve has remained unchanged since.
• At the time of issuance the bond had a AA rating. The issuer has since then incurred significant increases in operating costs and given a drop in the operating profit margins, analysts have estimated that the bond will most likely be downgraded to a BBB within the next year.
• The bond has the duration and convexity similar to a 7-year Zero-coupon Bond
• The bond is expected to have a currency loss of 0.50% over the period.

Benchmark yield and yield spreads for bonds with different credit ratings are given below:

Rating	Benchmark Yield	Yield Spread
AAA	0.5%	0.25%
AA	0.75%	0.9%
BBB	1.35%	0.98%
CCC	2.45%	1.05%
D	4.8%	1.25%