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QUESTION 59 Peter has a fixed income portfolio that consists of Bond A, Bond B, and...

QUESTION 59

  1. Peter has a fixed income portfolio that consists of Bond A, Bond B, and Bond C. The bonds have durations of 4, 6 and 10, respectively. If Peter has 50% invested in Bond A and 25% invested in each of the other two bonds, what is the duration for the portfolio? Assume that the correlation between the bonds is 0.5.

    a. 5.5.

    b. 6.0.

    c. 6.7.

    d. 7.2.

QUESTION 60

  1. Gordon bought a 10-year bond, with a 6% coupon paid semi-annually. He paid $1,078 for the bond. What is the effective duration assuming a 50-basis point change in interest rates?

    a. 7.3427.

    b. 7.5755.

    c. 8.1669.

    d. 8.2154.

Solutions

Expert Solution

59. b. 6.0

60. b. 7.5755

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 4 months ago
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