question archive 2) An investor invested $20 million in the following portfolio: 20% invested in 3-year zero coupon bond 40% invested in 2
2) An investor invested $20 million in the following portfolio: 20% invested in 3-year zero coupon bond 40% invested in 2
Subject:FinancePrice: Bought3
2) An investor invested $20 million in the following portfolio:
20% invested in 3-year zero coupon bond
40% invested in 2.25-year T-note paying 5% coupon
40% invested in 3.5-year floating rate bond with 20 basis point spread with annual
payments (Assume that the yield curve has not changed for the last 6 months.)
Answer the following questions using the semi-annually compounded yield curve in the Appendix:
(2-a) Calculate the durations of the securities in the portfolio above.
(2-b) Compute the duration of the portfolio.
(2-c) Compute the dollar duration of the portfolio
(2-d) Calculate 95% ES (Expected Shortfall) of the portfolio. Assume that ???????? has the following distribution:
dr~N(0.003, 0.01^2)
(2-e) You decide to hedge your portfolio with a 2-year coupon bond paying 2% on a quarterly basis. How much should you go short/long on this bond in order to make it immune to interest rate changes?
