Question

a. The duration and modified duration can be calculated using a spreadsheet, such as Excel. It gives the precise duration measure because it avoids the rounding-off errors, which are inevitable with manual calculations.

 

Bond 1: 13 years, 8.50%, priced to yield 7.47%.

The duration of this bond is (?) years.  (Round to two decimal places.)

The modified duration of this bond is (?) years.  (Round to two decimal places.)

 

Bond 2: 15 years, 7.875% priced to yield 7.60%.

The duration of this bond is (?) years.  (Round to two decimal places.)

The modified duration of this bond is (?) years.  (Round to two decimal places.)

 

Bond 3: 20 years, zero-coupon, priced to yield 8.22%.

The duration of this bond is (?) years.  (Round to two decimal places.)

The modified duration of this bond is (?) years.  (Round to two decimal places.)

 

Bond 4: 24 years, 7.50%, priced to yield 7.90%.

The duration of this bond is (?) years.  (Round to two decimal places.)

The modified duration of this bond is (?) years.  (Round to two decimal places.)

 

b. Find the duration of the whole bond portfolio if Elliot puts $250,000 into each of the 4 U.S. Treasury bonds.

 

The duration of this portfolio is (?) years.  (Round to two decimal places.)

c. Find the duration of the portfolio if Elliot puts $360,000 each into bonds 1 and 3 and  $140,000 each into bonds 2 and 4.

 

The duration of this portfolio is (?) years.  (Round to two decimal places.)

 

d. Which portfolio—the portfolio in part b or the portfolio in part c—should Elliot select if he thinks rates are about to head up and he wants to avoid as much price volatility as possible?  (Choose the best answer below.)

Question T7 11.29 mcq.png

Answer 1

ref.  https://www.homeworklib.com/question/1588699/elliot-karlin-is-a-35-year-old-bank-executive-who