Question
Calculate the rebalancing ratio and cash required for rebalancing to maintain dollar duration at the initial level. A. Calculate the rebalancing ratio. B. Calculate the
Calculate the rebalancing ratio and cash required for rebalancing to maintain dollar duration at the initial level.
A. Calculate the rebalancing ratio.
B. Calculate the cash required for this rebalancing
Please Show Work and Explain!
Intial
| Bond | Coupon | Maturity | Price/Value | YTM | Duration | Dollar Duration |
| Bond X | 3.00% | 2 | $ 1,000,000 | 3.00% | 1.93 | |
| Bond Y | 4.00% | 5 | $ 1,000,000 | 4.00% | 4.49 | |
| Bond Z | 5.00% | 10 | $ 1,000,000 | 5.00% | 7.79 | |
| $ 3,000,000 |
After Change
| Bond | Coupon | Maturity | Value/Price | YTM | Duration | Dollar Duration |
| Bond X | 3.00% | 2 | $ 980,961 | 4.00% | 1.92 | |
| Bond Y | 4.00% | 5 | $ 956,240 | 5.00% | 4.46 | |
| Bond Z | 5.00% | 10 | $ 925,613 | 6.00% | 7.67 | |
| $ 2,862,814 |
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ISE International Financial Management
Authors: Cheol Eun, Bruce Resnick, Tuugi Chuluun
9th International Edition
1260575314, 9781260575316
