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Use the cash flows of a portfolio of the following three bonds to calculate the yield...

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.

Solutions

Expert Solution

  • SHORT CUT FOR PV FACTOR = 1/(1+r)^n

    FOR EXAMPLE : FOR 3 YEAR BOND = 1/(1+0.05)^3 = 0.863838

jeff jeffy answered 6 months ago
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