Question
Please Use Excel PLS, Show Excel formula Thanksss!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1. Portfolio A consists of $5,000 investment in a 1-year zero-coupon bond and $20,000 investment in a
Please Use Excel PLS, Show Excel formula Thanksss!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1. Portfolio A consists of $5,000 investment in a 1-year zero-coupon bond and $20,000 investment in a 20-year zero-coupon bond. Portfolio B consists of a 10-year zero-coupon bond with a face value of $17,000. The current yield on all bonds is 4% per annum (continuously compounded).
a. Compute the actual percentage changes in the values of the two portfolios for a 20-basis point increase in yields.
b. Compute the actual percentage changes in the values of the two portfolios for a 200-basis point increase in yields.
c. Compute the duration for each portfolio. Use these durations to forecast the change in the value of each portfolio for a 20-basis point and a 200-basis point increase in yields. d. Compute the convexities for each portfolio. Use duration and convexity to forecast the change in the value of each portfolio for a 20-basis point and a 200-basis point increase in yields.
e. Find the percentage forecast errors from c and d. Discuss your results.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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