Question: *Please show all work and explain steps* You have a portfolio of 2 shares of Bond A and 1 share of Bond B Bond A:

*Please show all work and explain steps*

You have a portfolio of 2 shares of Bond A and 1 share of Bond B

Bond A: 5-year zero coupon bond, $100 par value.

Bond B: 10-year bond with annual coupon at 3%, $100 par value redeemable at par.

Both bonds have annual yield at 4%.

(a) Calculate present value of your portfolio.

(b) Calculate Macaulay duration of your portfolio.

(c) Approximate the change in present value of your portfolio given a 0.3% decrease in yield, using 1st-order approximation with modified duration.

(d) Approximate the change in present value of 1 share of Bond B given a 0.5% increase in yield, using 1st-order approximation with Macaulay duration.

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