Ellio: Karlin is a 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the bank's investments department, he's well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, Elliot intends to use $1 million of his inheritance to purchase 4 U.S. Treasury bonds: 1. An 8.51%, 13-year bond that's pnood at $1,084.69 to yield 7 48%. 2. A 7.759%, 15-year bond that's priced at S 1014.98 to yield 7 59%. , A 20-year stripped Treasury (zero coupon) that's priced at S200.05 to yield 8.21%. 4. A 24-year, 7.48% bond thats priced at S958.22 to yield 7.87%. Note that these bonds are semiannual compounding bonds a. Find the duration and the modified duration of each bond b. Find the duration of the whole band portfolio if Eliot puts $250,000 into each of the 4 U.S. Treasury bonds c. Find the duration of the portfolio if Eliot puts $370,000 each into bonds 1 and 3 and $130,000 each into bonds 2 and 4. d. Which portolio-b orc shouid Elliot selact if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From which portolio does he stand to make more in annual interest income? Which portolio would you recommend and why? a. The durato and modif od du aton can be calculatod usr g spreadsheet, such as Excel Bond 1: 13 years. 8 51 %, priced to yield 7.48% The duration of this bond is years. (Round to wo decimal places.) The modfied duration of this bond is years. (Round to two decimal places) Bond 2: 15 years, 7.759% priced to yield 7.59%. The duration of this bond is years. (Round to two decimal places.) The modified duration of this bond isyears. (Round to two decimal places.) Bond 3: 20 years, zero coupon, priced to yield 8.21%. The duration ot this bond isyoars. (Round to two decimal places.) The mod fied duration of this bond isyears. (Round to two decimal places) tt gives the prec se durato measure because oids the rounding-off 0 ors, h ch are inevitable with manual calcuations Bond 4-24 years, 7.48%, priced io yield 7.87%. The duration of this bond is years. (Round to two decimal places.) The modified duration of this bond is years. Round to two decimal places.) b. Find the duration of the whole bond pordoio if Elliot puts $250,000 into each of the 4 U.S. Treasury bonds. The duration of this portfolio | years. (Round to two docimal places.) c. Find the duration of the portsolio if Eliot puts $370,000 each into bonds 1 and 3 and $130,000 each into bonds 2 and 4 The duration of this portolio isyears. (Round to two decimal places.) d. Which portfolio-the portfo io in part b or the portfolio in part c-should Eliot select if he thinks rates are about to head up and he wants to avoid as much price volatlity as possible? (Choose the best answer below.) Ellio: Karlin is a 35-year-old bank executive who has just inherited a large sum of money. Having spent several years in the bank's investments department, he's well aware of the concept of duration and decides to apply it to his bond portfolio. In particular, Elliot intends to use $1 million of his inheritance to purchase 4 U.S. Treasury bonds: 1. An 8.51%, 13-year bond that's pnood at $1,084.69 to yield 7 48%. 2. A 7.759%, 15-year bond that's priced at S 1014.98 to yield 7 59%. , A 20-year stripped Treasury (zero coupon) that's priced at S200.05 to yield 8.21%. 4. A 24-year, 7.48% bond thats priced at S958.22 to yield 7.87%. Note that these bonds are semiannual compounding bonds a. Find the duration and the modified duration of each bond b. Find the duration of the whole band portfolio if Eliot puts $250,000 into each of the 4 U.S. Treasury bonds c. Find the duration of the portfolio if Eliot puts $370,000 each into bonds 1 and 3 and $130,000 each into bonds 2 and 4. d. Which portolio-b orc shouid Elliot selact if he thinks rates are about to head up and he wants to avoid as much price volatility as possible? Explain. From which portolio does he stand to make more in annual interest income? Which portolio would you recommend and why? a. The durato and modif od du aton can be calculatod usr g spreadsheet, such as Excel Bond 1: 13 years. 8 51 %, priced to yield 7.48% The duration of this bond is years. (Round to wo decimal places.) The modfied duration of this bond is years. (Round to two decimal places) Bond 2: 15 years, 7.759% priced to yield 7.59%. The duration of this bond is years. (Round to two decimal places.) The modified duration of this bond isyears. (Round to two decimal places.) Bond 3: 20 years, zero coupon, priced to yield 8.21%. The duration ot this bond isyoars. (Round to two decimal places.) The mod fied duration of this bond isyears. (Round to two decimal places) tt gives the prec se durato measure because oids the rounding-off 0 ors, h ch are inevitable with manual calcuations Bond 4-24 years, 7.48%, priced io yield 7.87%. The duration of this bond is years. (Round to two decimal places.) The modified duration of this bond is years. Round to two decimal places.) b. Find the duration of the whole bond pordoio if Elliot puts $250,000 into each of the 4 U.S. Treasury bonds. The duration of this portfolio | years. (Round to two docimal places.) c. Find the duration of the portsolio if Eliot puts $370,000 each into bonds 1 and 3 and $130,000 each into bonds 2 and 4 The duration of this portolio isyears. (Round to two decimal places.) d. Which portfolio-the portfo io in part b or the portfolio in part c-should Eliot select if he thinks rates are about to head up and he wants to avoid as much price volatlity as possible? (Choose the best answer below.)