Portfolio Alpha contains a 5-year zero-coupon bond with a face value of $5,000 and a 9-year...

Portfolio Alpha contains a 5-year zero-coupon bond with a face value of $5,000 and a 9-year zero-coupon bond with a face value of $6,050. Portfolio Beta is composed of only a 7-year zero-coupon bond with a face value of $10,000. The current yield on all three bonds is 5% per annum. Show that both portfolios have the same duration. What percentage changes in the two portfolio values would result from all three yields jumping to 7.5% per annum?

Expert Solution

FIRST MAGE SHOWS THAT BOTH HAVE SAME PORTFOLIO DURATION OF 7 YEARS

SECOND IMAGE SHOWS % CHANGE IN PRICE

jeff jeffy answered 2 years ago

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