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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Please provide feedback on final ans.........Plz get back for question, clarification...........All the best

jeff jeffy answered 1 year ago

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