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Calculate the yield to maturity and the duration of the following portfolio of bonds. one year...

Calculate the yield to maturity and the duration of the following portfolio of bonds.

one year T-bill yielding 4.65%

Three-year AAA-rated bond paying semiannual coupons at 5% with a yield of 5.25%

Two-year BBB-rated bonds paying semiannual coupons at 5.5% with a yield of 6.75%

Solutions

Expert Solution

Part 1: One year Treasury Bill

Yield is given as 4.65%. Hence YTM is 4.65%

Being issued for discount (no coupon), Duration is equal to term to maturity. Hence the Duration= 1 year.

Part 2: AAA Rated Bond

Yield is given as 5.25%. Hence YTM is 5.25%

Duration is ascertained at 2.82219 years as follows:

Part 3: BBB Rated Bond

Yield is given as 6.75%. Hence YTM is 6.75%

Duration is ascertained at 1.92008 years as follows:

jeff jeffy answered 2 years ago
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