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Problem:

Portfolio A consist of a one-year zero-coupon bond with a face value of $2000 and a 10-year zero-coupon with a face value of $6,000. Portfolio B consist of a 5.95-year zero-coupon bond with a face value of $5000. The current yield on all bonds is 10% per annum (continuously compounded).

Required:

Question 1: Show that both portfolios have the same duration

Question 2: Show that the percentage changes in the values of the two portfolios for a 0.1% per annum increase in yields are the same

Question 3: What are the percentage changes in the values of the two portfolios for a 5% per annum increase in yields?

Note: Please explain comprehensively and give step by step solution.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91149041

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