Question

A suppose you have a three-security portfolio containing bonds A, B and C. The modified duration of the portfolio is 6.5. The market values of bonds A, B and Care $30, $15 and $40, respectively. The modified durations of bonds A and Bare 3.5 and 5.5, respectively. Which of the following amounts is closer to the modified duration of bond C7 A) 9.1. B) 4.6. C) 7.2. D) 7.5. 7. Given the 1-year annualized spot rate of 8.3 percent, and the 1.5-year annualized spot rate of 8.93 percent, what is the annualized implied six-month rate one-year from now? A) 9.696 B) 10.2% C) 4.89 D) 5.1%. 8. A 6-year, $1,000 face value, 8.5% semi-annual coupon bond is selling for $920.90. The bonds yield to malurin is: A) 10.3%. B) 5.15%. C) 9.23% D) 4.61%. An investor gathers the following information about a 1.5 year, semiannual-pay bond: Par value of $1,000 Coupon of 9% Current price of $990 0.5-year annualized spot interest rate is 8% 1-year annualized spot interest rate is 9% Using the above information, the annualized 1.5-year spot rate is closest to: A) 9.78%. B) 8.31% C) 4.89% D) 4.16% A bond's duration is 4.5 and its convexity is 87.2. If interest rates rise 100 basis points, the bond's percentage price change is closest to: 4) -4.94% B) -4.06%. -) -4.50% ) -3.91%. Page 2

Answer 1

1.
=(6.5*(30+15+40)-3.5*30-5.5*15)/40
=9.125

2.
=(((1+8.93%/2)^3/(1+8.3%/2)^2)^1-1)*2
=10.19572%

3.
=RATE(6*2,8.5%*1000/2,-920.90,1000)*2
=10.30003%

4.
990=4.5%*1000/1.04+4.5%*1000/1.045^2+1000*(1+4.5%)/(1+r/2)^3
=>r=9.78%

5.
=-4.5*1%+0.5*87.2*(1%)^2
=-4.06400%