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Question 3: A bond portfolio consists of the following bonds. Bond Coupon Years to Maturity Required Yield Par Amount ($MM) A 4% 2 4% $3.75
Question 3: | A bond portfolio consists of the following bonds. | ||||
Bond | Coupon | Years to Maturity | Required Yield | Par Amount ($MM) | |
A | 4% | 2 | 4% | $3.75 | |
B | 4% | 6 | 4% | $4.30 | |
C | 3% | 12 | 5% | $3.75 | |
D | 0.00% | 28 | 6% | $10.00 | |
(a) Calculate the price per $1,000 par value for each bond. | |||||
(b) Calculate the aggregate market value for each bond. | |||||
(c) Calculate the aggregate market value for the portfolio. | |||||
(d) Calculate the Macauley duration for each bond. | |||||
(e) Calculate the modified duration for each bond. | |||||
(f) Calculate the modified duration for the portfolio. | |||||
(g) If interest rates increased by 50bp at all maturities, based on the modified duration calculated in (f), by what percentage would the market value of the portfolio change (show increases in price as a positive percentage; decreases as a negative percentage? | |||||
(h) Will the amount calculated in (g) over-estimate or under-estimate the actual prices based on that interest rate change? | |||||
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