Revision as of 17:06, 20 November 2023 by Admin (Created page with "'''Solution: B''' Because Bond A sold for its fact amount, the yield rate is the coupon rate of <math>6 \%</math> per year. The present values of the three bonds are: Bond A: 1000 (given) Bond B: <math>1000(1.06)^{-5}=747.26</math> Bond C: <math>1000(1.06)^{-10}=558.39</math> The durations are: Bond A: 7.8017 Bond B: 5 Bond C: 10 The portfolio duration is the average of these three durations, weighted by the bond prices. <math display="block"> \text { Duration }=\frac...")
Exercise
Nov 20'23
Answer
Solution: B
Because Bond A sold for its fact amount, the yield rate is the coupon rate of [math]6 \%[/math] per year. The present values of the three bonds are:
Bond A: 1000 (given) Bond B: [math]1000(1.06)^{-5}=747.26[/math] Bond C: [math]1000(1.06)^{-10}=558.39[/math] The durations are: Bond A: 7.8017 Bond B: 5 Bond C: 10 The portfolio duration is the average of these three durations, weighted by the bond prices.
[[math]]
\text { Duration }=\frac{1000(7.8017)+747.26(5)+558.39(10)}{1000+747.26+558.39}=7.426
[[/math]]
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