Question: Security Face Value Market Value Term (in Years) Annual Coupon Yield to Maturity US Treasury Bill $ 20,000.00 $ 19,192.00 1 0% Corporate Bond (Aa

Security	Face Value	Market Value	Term (in Years)	Annual Coupon	Yield to Maturity
US Treasury Bill	$ 20,000.00	$ 19,192.00	1	0%
Corporate Bond (Aa Rating)	$ 67,500.00	$ 60,359.20	8	10%	12.14%
Corporate Bond (B Rating)	$ 112,500.00	$ 89,968.90	10	12%	16.17%
Corporate Bond (Baa Rating)	$ 37,500.00	$ 9,753.20	5	15%	13.28%
Cash	$ 7,500.00

(d) Using Excel Solver show how much would need to be invested in each instrument to obtain a portfolio Macaulay duration of 3.25 years. There are the following constraints. 1 The total investment should not change. 2 The same amount needs to be held in cash 3 A total of $100,000 market value needs to be invested in the T Bill and $20,000 in the Aa Bond. 4 Yield is maximized.

NB Work on numbers in the above portfolio table. (e) Is default risk a major concern for this portfolio? (f) The Baa rated bond has just been re-rated by one of the rating agencies and this has the impact of reducing its yield to maturity by 5 basis points. If at the same time there is a general change in interest rates so that yields fall across the whole of the yield curve by 20 basis points (including the rerated bond), what is the new value of the portfolio?

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