Question

Today is 1 July 2020. Joan has a portfolio which consists of two different types of financial instruments (henceforth referred to as instrument A and instrument B). Joan purchased all instruments on 1 July 2013 to create this portfolio and this portfolio is composed of 21 units of instrument A and 35 units of instrument B.

• Instrument A is a zero-coupon bond with a face value of 100. This bond matures at par. The maturity date is 1 January 2030.
• Instrument B is a Treasury bond with a coupon rate of j₂ = 3.62% p.a. and face value of 100. This bond matures at par. The maturity date is 1 January 2023.
• yield rate is 4.04%
• 
  
• 
  

(d) Based on the price in part a and part b, and the duration value in part c, calculate the current duration of Joan’s portfolio. Express your answer in terms of years and round your answer to two decimal places.

Select one:

a. 4.45

b. 4.49

c. 6.56

d. 5.94

Answer 1

Option B 4.49 Years