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Problem 13-10

A university endowment fund has sought your advice on its fixed-income portfolio strategy. The characteristics of the portfolio's current holdings are listed below:

Bond	Credit Rating		Maturity (yrs.)		Coupon Rate (%)		Modified Duration		Convexity		Market Value of Position
A	U.S. Govt.		3		0		2.712		9.7		$33,000
B	A1		10		10		6.004		56.2		33,000
C	Aa2		5		11		3.604		18.6		33,000
D	Agency		7		8		4.868		32.2		33,000
E	Aa3		12		0		11.269		128.9		33,000
											$165,000

1. Calculate the modified duration for this portfolio (i.e., Mod D_p). Do not round intermediate calculations. Round your answer to three decimal places.

   years

2. Suppose you learn that the implied sensitivity (i.e., modified duration) of the endowment's liabilities is about 6.80 years. Identify whether the bond portfolio is: (1) immunized against interest rate risk, (2) exposed to net price risk, or (3) exposed to net reinvestment risk.

   The portfolio's duration is -Select-less thanmore thanequal toItem 2 the liability's duration, portfolio is -Select-immunized against interest rate riskexposed to net price riskexposed to net reinvestment riskItem 3 .