Q. Grandma want to invest her money for 5 years. She is very risk-averse therefore she wants to have a certain return of 10% no matter how interest rate would change. There are 3 bonds A, B and C available for her to invest in. All of them are annual coupon bonds that yield 10% and have the Macaulay Duration of 4, 3.5 and 8. What would be the portfolio weight for grandma? Assuming she wants to allocate equal weight to A & B

A. 0.3529, 0.3529, 0.2942. B. 0.4064, 0.4064, 0.1872. C. 0.4156, 0.4156, 0.1688. D. None of the above.

-Bond ABC has maturity of 1.5 years, coupon rate of 6% (interest paid semi-annually), and YTM of 10%. Calculate the actual Macaulay duration of this bond in years. (Round to 4 decimal places)

-Calculate the actual Modified duration of this bond in years. (Round to 4 decimal places)

-Use the bond's duration to estimate its dollar price change if interest rates increase by 80 bsp. (Enter a percentage number, round to 4 decimal places, beware of the signs (+/-))