There are 2 bonds in the portfolio. Their current prices, interest rates, and durations are listed...
There are 2 bonds in the portfolio. Their current prices, interest rates, and durations are listed below. What is the change in the portfolio value due to a 1% drop in the interest rate? Bond A B Market price 800 1,200 Interest rate 7% 5% Duration (year) 6 4
Homework Answers
Current portfolio value = MV A + MV B = 800+1200 = 2000
change in MV A = -modified duration*bond price*yield change
= -6*800*(-.01) =48
change in MV B = -modified duration*bond price*yield change
= -4*1200*(-.01) =48
Change in MV of portfolio = change in MV A+change in MV B = 48+48 = 96
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