1. You are interested in managing for a firm that is located in Canada a US bond portfolio. Calculate the total expected return on your portfolio. Also briefly discuss what this represents process represents overall.

Notional principal of portfolio (in millions) $400

Average bond coupon payment (per 100 par value). $3.50

Coupon frequency Annual

Current average bond price. $96.50

Expected average bond price in one year (assuming an unchanged yield curve) $97.00

Average bond convexity 20

Average bond modified duration 4.25

Expected average yield and yield spread change 0.18%

Expected credit losses 0.15%

Expected currency gains ($ appreciation vs. $CAD) 0.55%