In: Finance
Use the cash flows of a portfolio of the following three bonds to calculate the yield to maturity of he porfolio. Each bond has a face value of $1,000. Use the cash flows and yield to maturity to calculate the duration of the portfolio:
Three-yeear zero coupon bond with 5% yield.
Five-year zero-coupon bond with 7% yield.
Seven-year zero-coupon bond with 6% yield.
Verify your portfolio duration calculation using the weighted average of the individual bond durations.
SHORT CUT FOR PV FACTOR = 1/(1+r)^n
FOR EXAMPLE : FOR 3 YEAR BOND = 1/(1+0.05)^3 = 0.863838