You are considering investing in two bonds, both with 4 years to maturity. Bond A is a

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You are considering investing in two bonds, both with 4 years to maturity. BondA is a zero-coupon bond with 10% yield to maturity. BondB pays $50 coupons annually and its yield to maturity is 12%. Assume $1,000 par.

a. Calculate the (i) market price of each bond; (ii) its duration; and (iii) its convexity.

b. If you buy one bond ofA and one bond ofB, what is the yield to maturity and the duration of your portfolio?

c. How would you change your answer in part (b) above if you buy 10 bonds ofA and one bond ofB? Compare and discuss your results.

Posted Date: May 11, 2024 06:20 AM

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You are considering investing in two bonds, both with 4 years to maturity. Bond A is a

Question:

Expert Answer:

a Calculation of Bond A i Market Price of Bond A To calculate the market price of Bond A we can use the formula Market Price Face Value 1 Yield to MaturityNumber of Years to Maturity Market Price of B... View the full answer

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