Question

In: Finance

A portfolio has 3 bonds with semiannual payments of interest. Bond 1 Bond 2 Bond 3...

A portfolio has 3 bonds with semiannual payments of interest.

Bond 1 Bond 2 Bond 3
Face Value 11000 15000 12000
Coupon 12% 15% 10%
Maturity (Yrs) 3 5 4
Yield 10% 9% 7%

Calculate the yield for this portfolio. (assume that interest is paid in the same dates for the 3 bonds).

Solutions

Expert Solution

Bond 1 Bond 2 Bond 3
Face Value 11000 15000 12000
Face Value ($) 1000 1000 1000
No of Bonds = Tptal Face Value / Face value / Bond 11 15 12
Coupon 12% 15% 10%
Coupon Amt($) = Coupon % x Face Value 120.00 150.00 100.00
Maturity (Yrs) 3 5 4
Payment Semiannual Semiannual Semiannual Semiannual
Nof couopon Payments 6 10 8
Yield 10% 9% 7%
Effective Yield / Semiaanual = Yield / 2 0.05 0.045 0.035
Current Price =
PV(0.05,6,-120)+1000/(1.05)^6 1355
Current price (bond 2) 1831
Current price (bond 3) 1447
Market Value = CurrenT price x No of Bond 14908 27463 17362
Total Value of Bond 59732
(Total Value = mkt value of bond 1 + 2 + 3)
Proportion of Bond 25% 46% 29%
[14908/59732 = 25%]
Portfolio Return = Bond proportion in portfolio X respetive return
(25% x 10% + 46% x 9% + 29% x 7%) 8.67%

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