Consider a bond portfolio, which consists of 1,000 units each ofthree bonds:
- Bond A with annual coupons, a coupon rate of 7%, maturity of 6years, and YTM of 6.5%.
- Bond B, a perpetuity with coupon rate of 7.5%, and YTM of6.0%.
- Bond C, a zero-coupon bond with YTM of 6.9% and maturity of 5year.
- Calculate the total current market value of the portfolio.
- Calculate the modified duration of the portfolio
- What would be the new market value of the portfolio if interestrates were to increase by 60 basis points across board? (usemodified duration approach)
- Suggest a portfolio adjustment the manager can use to mitigatethe portfolio’s exposure to the yield increase.
