Say you have two bonds, bond A and bond B. Bond A has a coupon rate of 5%, 3 years to maturity, and a current yield to maturity of 3%. Bond B has a coupon rate of 3%, 5 years to maturity, and a current yield to maturity of 4%. Assume both bonds have $100 face value.

 

 

What is the dollar duration of Bond A? (to 4 decimal places)

 

What is the dollar duration of Bond B? (to 4 decimal places)

 

If I want to make a portfolio that consists of buying 1 of bond A and some quantity of bond B, how many of bond B do I need to buy (or short sell) so that the portfolio is fully hedged (ie has a dollar duration of 0). Buying or selling fractions of a bond is okay, round your answer to 4 decimal places.

If I want to make a portfolio that consists of buying 1 of bond A and some quantity of bond B, how many of bond B do I need to buy (or short sell) so that the portfolio is fully hedged (ie has a dollar duration of 0). Buying or selling fractions of a bond is okay, round your answer to 4 decimal places.

 

What is the Macaulay duration of Bond A? Round your final answer to 4 decimal places.

 

What is the Macaulay duration of Bond B? Round your final answer to 4 decimal places.

 

What is the Macaulay duration of a portfolio consisting of 3 of Bond A and 5 of Bond B? 

Answer rating: 100% (QA)

To calculate the dollar duration of a bond we use the following formula Dollar Duration Modified Dur... View the full answer