(A) An investor has the following bond portfolio Face Value Semi Annual Coupon (Spa) Maturty year) Semi Annual Yield (pa) Bond A $60,000,000 8.00 12 9.80% Bond B $45,000,000 11.00 9.20% Bond $75,000,000 9.00 6 8.20% (i) What is the portfolio Macaulay duration? (4 Marks) in) The interest rate outlook expects to increase so the investor decides to reduce the portfolio to a target Macaulay duration of 2. The investor decides to keep the weighting on Bond Chow much Bond A and Bond B do the investor need to change" in order to meet the target? (7 (7 Marks) (in) Instead of (ii), the investor has a choice to replace Bond A by the following three bonds issued by the same issuer to increase portfolio duration Code Rating Seni Anal Coupon (pe Maturtyar) Seni Anal Yield American Bond X AM 20 80 10:36 Bond Y AM BOX 10.2 Bond Explain which of these 3 bonds will the investor choose to have the best impact on interest rate decrease! (3 Marks) (B) The diagram below shows the impact of Credit Ratings on Bond Yields Sprend Trenuri AAA Maturity A bond investor has a portfolio of AA, A, BBB and BB corporate bonds from the same sector. The investor expects a declining yield spread between "AA" and "A rating, while a widening yield between "AA" and "BB" rating, though the yields for "A" rated bonds remain constant. In anticipation of such move, the investor will adjust the weighting of these bonds. Which would he "overweight", "underweight" and "neutral based the expectation? (6 Marks) (A) An investor has the following bond portfolio Face Value Semi Annual Coupon (Spa) Maturty year) Semi Annual Yield (pa) Bond A $60,000,000 8.00 12 9.80% Bond B $45,000,000 11.00 9.20% Bond $75,000,000 9.00 6 8.20% (i) What is the portfolio Macaulay duration? (4 Marks) in) The interest rate outlook expects to increase so the investor decides to reduce the portfolio to a target Macaulay duration of 2. The investor decides to keep the weighting on Bond Chow much Bond A and Bond B do the investor need to change" in order to meet the target? (7 (7 Marks) (in) Instead of (ii), the investor has a choice to replace Bond A by the following three bonds issued by the same issuer to increase portfolio duration Code Rating Seni Anal Coupon (pe Maturtyar) Seni Anal Yield American Bond X AM 20 80 10:36 Bond Y AM BOX 10.2 Bond Explain which of these 3 bonds will the investor choose to have the best impact on interest rate decrease! (3 Marks) (B) The diagram below shows the impact of Credit Ratings on Bond Yields Sprend Trenuri AAA Maturity A bond investor has a portfolio of AA, A, BBB and BB corporate bonds from the same sector. The investor expects a declining yield spread between "AA" and "A rating, while a widening yield between "AA" and "BB" rating, though the yields for "A" rated bonds remain constant. In anticipation of such move, the investor will adjust the weighting of these bonds. Which would he "overweight", "underweight" and "neutral based the expectation? (6 Marks)