We would like to invest the amount of 1 000 000 USD for 4 years. There...

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

What the realized amount of each portfolio (the amount on the end of maturity) will look like, if YTM will decrease by 1 % day after the bonds purchase
What the realized amount of each portfolio (the amount on the end of maturity) will look like, if YTM will increase by 1 % day after the bonds purchase

What the realized amount of each portfolio will look like, if YTM will decrease by 1 % one day after purchase of the bonds and under this conditions we will sell this bond

What the realized amount of each portfolio will look like, if YTM will increase by 1 % one day after purchase of the bonds and under this conditions we will sell this bond

Expert Solution

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..

jeff jeffy answered 6 months ago

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