Noah Kramer, a fixed-income portfolio manager based in the country of Sevista, is considering the purchase of Sevista government bonds. Sevista currently has government bonds evenly distributed among 5-, 10-, and 25-year maturities. Noah decides to evaluate two strategies for investing in Sevista bonds. The following table shows the details of the two strategies.

The market value of the bonds purchased will be $10 million and the target modified duration is 15 years. Before choosing one of the two bond investment strategies, Kramer wants to study how the market value of the bonds will change if an instantaneous interest rate shift occurs immediately after his investment. The details of the interest rate shift are shown below.
Interest Rate Interest Rate Change
Maturity (years) (basis points)
5 ........... Down 75
15 ........... up 25
25 ........... up 50
Calculate, for this instantaneous interest rate shift, the percentage change in the market value of the bonds that will occur under each investmentstrategy.

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5-Year Maturity Modified 15-Year Maturity Modified 25-Year Maturity Modified Strategy Duration 4.8 $5 million S0 Duration 14.35 S0 $10 million Duration 23.81 $5 million s0