On february 151994 the yield curve continuously compounded, Ask an Expert

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On February 15,1994, the yield curve (continuously compounded) is flat at 5%

On August 13,1994, the yield curve (continuously compounded) is flat at 7%

The following portfolio will be used:

• Long $40 million of invested in 2-year coupon bond paying 9% annually

• Short $30 million of a 1-year zero coupon bond.

Note: Simplification from the textbook version includes (1) Assume flat term structure of interest rate (2) There are no inverse floaters in the portfolio (you should be able to price and measure the risk of inverse floaters by breaking them down into more basic fixed income securities).

You are standing on February 15,1994: (a) What is the total value of the portfolio? (b) Compute the dollar duration of the portfolio.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92798168

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