QUIZZ 2
Please show all calculation of your results
1. Consider the following Treasury securities :
Bonds Price Modified duration (years)
A $1000 6 B $ 800 7
Which bond will have the greatest dollar price volatility for a 0.25% change in interest rate ? (3 points)
2. Consider the following portfolio of bonds :
BONDS MARKET VALUE DURATION CONVEXI
A $13 million 2 25
B $ 27 million 7 47
C $ 60 million 8 56
D $ 40 million 14 125
a. What is the portfolio’s duration ? (2 points)
b. If interest rate for all maturities change by 50 basis point (that is 0.50%), what is the approximate percentage change in the value of the portfolio ( 1 point)
3. From your Bloomberg sheet handout :
What is the dollar price of the 6-month Treasury bill? (2 points)
Today is January 22, 2002 and you wish to purchase the 5 year Treasury note. What is your total purchase price ? (3 points)
4. What is the duration of a 10 year zero coupon bond ? Explain your answer. (3 points) 5. What are the 2 definitions of duration? (2 points)
6. A bond portfolio manager expects interest rates to increase in the near future. What should his strategy be in readjusting his bond portfolio? (2 points)