An investor remembers her I-Core lectures and knows that r is the rate she needs for the risks she faces. She currently has a portfolio consisting of two bonds: Bond A has 5 years until maturity, annual payments, $1,000 Face Value, a 4.25% Coupon Rate and a current market price of $989.03 while Bond B has 8 years until maturity, semi-annual payments, $1,000 Face Value, a 6.2% Coupon Rate and a current market price of $1,051.42. The investor believes the Fed will continue to raise interest rates to combat inflation, so she has decided to determine how much value she will lose in her portfolio. If the Fed increases market rates by ½%, how much value will the investor lose?

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To determine the value loss in the portfolio due to an increase in market rates by we need to calcul... View the full answer