You’ve created a small bond portfolio by investing excess corporate cash in two annual-coupon bonds. The...

You’ve created a small bond portfolio by investing excess corporate cash in two annual-coupon bonds. The YTM for both bonds is 7%.

Bond Q is a 4-year, 5% coupon with a $1,000 face value; current price of $932.26
Bond R is a 6-year, 10% coupon with a $1,000 face value; current price of $1,143.00

What is the portfolio duration, that is, the duration of both instruments considered together, using the prices of the bonds. (Hint: This is not just the arithmetic average of the two individual bond durations.)

A. 4.29 years

B. 4.35 years

C. 4.56 years

D. 4.72 years

E. 5.25 years

Expert Solution

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jeff jeffy answered 1 year ago

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