In: Finance
We would like to invest the amount of 1 000 000 USD for 4 years. There we have zero-coupon bonds with the maturity of 1, 2, 3, 4…and 7 years with a uniform yield of 8 %. On this basis, we create 4 portfolios A, B, C, D such as:
Portfolio |
Maturity |
FV (USD) |
A |
4 |
1 360 489 |
B |
3 |
629 856 |
5 |
734 664 |
|
C |
2 |
583 200 |
6 |
793 437 |
|
D |
1 |
540 000 |
7 |
856 912 |
a. The realized Amount of Each Portfolio (the amount of End of Maturity) will look Lik as under when YTM will decrease 1% (From 8% to 7%)
Portfolio | Maturity | FV (USD) | realized amount Decresed By 1% YTM at the end of Maturity |
A | 4 | 1360489 | 1310796.0 |
B | 3 | 629856 | 612521.5 |
5 | 734664 | 701275.9 | |
C | 2 | 583200 | 572450.0 |
6 | 793437 | 750365.2 | |
D | 1 | 540000 | 535000.0 |
7 | 856912 | 802890.7 |
b.The realized Amount of Each Portfolio (the amount of End of Maturity) will look Lik as under when YTM will Increase 1% (From 8% to 9%)
Portfolio | Maturity | FV (USD) | realized amount Increased By 1% YTM at the end of maturity |
A | 4 | 1360489 | 1411581.6 |
B | 3 | 629856 | 647514.5 |
5 | 734664 | 769312.0 | |
C | 2 | 583200 | 594050.0 |
6 | 793437 | 838550.1 | |
D | 1 | 540000 | 545000.0 |
7 | 856912 | 914019.6 |
c.The realized Amount of Each Portfolio when YTM will Decrease 1% (From 8% to 7%) one day after purchase of the bonds (i.e. begining Period)
Portfolio | Maturity | FV (USD) | realized amount Decreased By 1% YTM one day after purchase of the bond |
A | 4 | 1360489 | 1310796.0 |
B | 3 | 629856 | 612521.5 |
5 | 734664 | 701275.9 | |
C | 2 | 583200 | 572450.0 |
6 | 793437 | 750365.2 | |
D | 1 | 540000 | 535000.0 |
7 | 856912 | 802890.7 |
D.The realized Amount of Each Portfolio when YTM will Increased 1% (From 8% to 9%) one day after purchase of the bonds (i.e. begining Period)
Portfolio | Maturity | FV (USD) | realized amount Increased By 1% YTM one day after purchase of the bond |
A | 4 | 1360489 | 1411581.6 |
B | 3 | 629856 | 647514.5 |
5 | 734664 | 769312.0 | |
C | 2 | 583200 | 594050.0 |
6 | 793437 | 838550.1 | |
D | 1 | 540000 | 545000.0 |
7 | 856912 | 914019.6 |
Explainantion: All above values are calculate based on FV formula for zero bonds coupn rates..