Question
Q3. You own the following portfolio, which is a significant part of your wealth: My portfolio Security Face Value Market Value Term (years) Coupon paid
Q3. You own the following portfolio, which is a significant part of your wealth:
| My portfolio Security | Face Value | Market Value | Term (years) | Coupon paid annually | Yield to maturity | ||||
| US Treasury Bill | $20,000 | $19,192 | 1 | 0% | |||||
| Corporate Bond Rated Aa | $67,500 | $60,359.2 | 8 | 10% | 12.14% | ||||
| Corporate Bond Rated B | $112,500 | $89,968.9 | 10 | 12% | 16.17% | ||||
| Corporate Bond Rated Baa | $37,500 | $39,735.2 | 5 | 15% | 13.28% | ||||
| Cash | $7,500 | ||||||||
(a) What is the yield to maturity for the T Bill?
(b) Calculate the Macaulay duration of each of the securities, and the Macaulay duration of the portfolio?
(c) If your friend has an investment horizon of 3 years and wants to sell the portfolio at that time to use the principal + interest, what recommendations would you make regarding the composition of the portfolio?
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