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York University - MFIN 5800 Portfolio A consists of a one-year zero-coupon bond with a face value of $2,000 and a 10-year zero-coupon bond with a face value of $6,000
Portfolio A consists of a one-year zero-coupon bond with a face value of $2,000 and a 10-year zero-coupon bond with a face value of $6,000. Portfolio B consists of a 5.95-year zero-coupon bond with a face value of $5,000. The current yield on all bonds is 10% per annum (continuously compounded)
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(a) Show that both portfolios have the same duration.
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(b) Show that the percentage changes in the values of the two portfolios for a 0.1% per annum increase in yields are the same.
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(c) What are the percentage changes in the values of the two portfolios for a 5% per annum increase in yields?
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