Bond A has a price of $94 500 and a duration of 1.96.Bond B has a price of $44 327 and has a duration of 3.78.Calculate the duration of a portfolio comprised of two of Bond A and three of Bond B.

Question

Quizplus · Accepted Answer

The duration of the portfolio is the market value weights of each bond times the duration of each bond.In this case,the market value of the bond portfolio is (94500 F1F1F1S1F1F1F10 2)+ (44327 F1F1F1S1F1F1F10 3)= 189000 + 132981 = $321981.The weight of the Bond A holding is 189000/321981 = 0.587 and the weight of the Bond B holding is 132981/321981 = 0.413.The duration of the portfolio is therefore 0.587 F1F1F1S1F1F1F10 1.96 + 0.413 F1F1F1S1F1F1F10 3.78 = 1.1505 + 1.5611 = 2.7116.

Bond a Has a Price of $94 500 and a Duration