A major bank is to sell securities from an existing security portfolio to ensure it has sufficient liquid funds available over the next one-month planning period. The bank wishes to sell a group of securities with the higher interest rate risk. Using the data below:

-Eurobonds, face value $30 million, four years to maturity, fixed annual coupon of 9.25 per cent per annum.

-Corporate bonds, face value $30 million, three years to maturity, fixed annual coupon of 10.40 per cent per annum.

-Current yields on these securities are 9.60 per cent per annum and 10.85 per cent per annum respectively.

a. Calculate the duration of each of the groups of securities. Show all calculations.

b. Which securities will the investor sell?

Answer rating: 100% (QA)

The duration of the bond is the weighted average of the payments of the bond divided by the price of ... View the full answer