In: Finance
Use the cash flows of a portfolio of the following three bonds to calculate the yield to maturity of the portfolio. Each bond has a face value of $1,000. Use the cash flows and yield to maturity to calculate the duration of the portfolio.
a. three-year zero-coupon bond with 5% yield,
b. five-year zero-coupon bond with 7% yield,
c. seven-year zero-coupon bond with 6% yield.
Verify your portfolio duration calculation using the weighted average of the individual bond durations.
SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE
SHORT CUT FOR PV FACTOR = 1/(1+r)^n
FOR EXAMPLE : FOR 3 YEAR BOND = 1/(1+0.05)^3 = 0.863838