(Answered)-8.16. Portfolio A consists of a one-year zero-coupon bond with a face value of $2,000 and a 10-...

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8.16.   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). a.       Show that both portfolios have the same duration. 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. c.        What are the percentage changes in the values of the two portfolios for a 5% per annum increase in yields?

 

Solution ID:10137804 | Question answered on 16-Oct-2016

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