Question
Consider two annual coupon bonds, A and B, which both have exactly 10 years until maturity. The bond paid its most recent. Both bonds just
Consider two annual coupon bonds, A and B, which both have exactly 10 years until maturity. The bond paid its most recent. Both bonds just paid their most recent annual coupons, so the next coupon for both will paid in exactly one year.
Bond A has a coupon rate of 4% and a YTM of 5%. Bond B has a coupon rate of 9% and YTM of 6%.
- What is the duration of bonds A and B individually?
- Create a portfolio that is equally weighted between bonds A and B, and calculate the duration of the portfolio.
- How does the duration of the equal- weighted portfolio compare to the equal-weighted average of individual bond duration? Why?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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
Accounting Information For Business Decisions
Authors: Billie Cunningham, Loren A. Nikolai, John Bazley, Marie Kavanagh, Geoff Slaughter, Sharelle Simmons
2nd Edition
0170253708, 978-0170253703
