A bank fixed-income manager has the following set of default risk free US Treasury bonds available...

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A bank fixed-income manager has the following set of default risk free US Treasury bonds available to choose from for her portfolio: Tenor Coupon Price ModDur Convexity 2y 0.25% 100 1.994 5 5y 0.875% 100 4.88 26.5 10y 2.00% 100 9.023 90.8 The manager is considering three possible portfolios to invest in as follows: i.) Equally value-weighted portfolio of all three bonds, ii.) A “bullet" portfolio which is fully invested in the intermediate (5-year) bond, and iii.)A “barbell" portfolio which is evenly divided between 2-year and 10-year bonds a.) Calculate the portfolio duration and convexity statistics for each portfolio b.) Calculate the expected change in portfolio value for an increase or decrease of 50 and 100 basis points for the bullet and barbell portfolios with a market value of $100 million and interpret the results. c.) How would you expect the equally weighted portfolio to perform under these scenarios relative to the other two? A bank fixed-income manager has the following set of default risk free US Treasury bonds available to choose from for her portfolio: Tenor Coupon Price ModDur Convexity 2y 0.25% 100 1.994 5 5y 0.875% 100 4.88 26.5 10y 2.00% 100 9.023 90.8 The manager is considering three possible portfolios to invest in as follows: i.) Equally value-weighted portfolio of all three bonds, ii.) A “bullet" portfolio which is fully invested in the intermediate (5-year) bond, and iii.)A “barbell" portfolio which is evenly divided between 2-year and 10-year bonds a.) Calculate the portfolio duration and convexity statistics for each portfolio b.) Calculate the expected change in portfolio value for an increase or decrease of 50 and 100 basis points for the bullet and barbell portfolios with a market value of $100 million and interpret the results. c.) How would you expect the equally weighted portfolio to perform under these scenarios relative to the other two?

Answer rating: 100% (QA)

A portfolios convexity the market valueweighted average of the convexity of the individual securities in the portfolio On the other hand A portfolios ... View the full answer