Question
You are a portfolio manager and have $100 million to invest. Per the guideline, you have to maintain the duration of your portfolio at around
You are a portfolio manager and have $100 million to invest. Per the guideline, you have to maintain the duration of your portfolio at around 4-5 years. You have a view that the yield curve will move up and flatten modestly in the coming three months.
a. Construct the portfolio by choosing at most 2 bonds from the below table. Explain your choice.
Bond Year to maturity coupon modified duration
A 2 4% 1.8
B 5 4.60% 4.1
C 10 5% 7.2
b. Three months have passed and the curve has moved in accordance to your view. Do you need to adjust your portfolio now? Explain
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