Portfolio A consists of a 1-year zero-coupon bond with face value of R2 million and...
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Portfolio A consists of a 1-year zero-coupon bond with face value of R2 million and a 10-year zero-coupon bond with a face value of R6 million. Portfolio B consists of a 5.95year zero-coupon bond with a face value of R5 million. The current yield on all bonds is 10% per annum. (i) Show that both portfolios have the same duration. [5 marks] (ii) Show that the percentage changes in the value of the two portfolios for a 0.1% per annum increase in yields are the same. [5 marks] (iii) What are the percentage changes in the values of the two portfolios for a 5% per annum increase in yields? Comment on your results. [ 8 marks]
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