You are the bond portfolio manager of ABT Ltd with four bond types in your portfolio to
Question:
You are the bond portfolio manager of ABT Ltd with four bond types in your portfolio to manage. Given the following characteristics of the bonds in the portfolio:
BOND A: COUPON RATE 4%, MARKET YIELD 4%, MATURITY 5 YEARS.
BOND B: COUPON RATE 6%, MARKET YIELD 4%, MATURITY 6 YRARS.
BOND C: COUPON RATE 3%, MARKET YIELD 4%, MATURITY 6 YEARS.
BOND D: ZERO-COUPON BOND, MARKET YIELD 4%, MATURITY 4 YEARS.
You have in your portfolio 2000 units of Bond A, 3000 units of Bond B, 1500 units of Bond C and 1000 units of Bond D. a. For each bond, compute the following:
1.Market price.
2.Macaulay and Modified Duration
3.Portfolio Duration and modified duration.
4.Suppose the market yield changes by 20 basis points, discuss the effects on the market value of the portfolio and justify any assumptions invoked.