Question

Bonds A, B, and C are in a portfolio currently valued at $1,000,000. $300,000 are invested in bond A, $300,000 are invested in bond B, and the remainder is invested in bond C. Bond A has a duration of 2 years, bond B has a duration of 1.7 years, and bond C has a duration of 2.5 years. What is the duration of the portfolio of bonds?

Answer 1

duration of the portfolio 2.11

Step-by-step explanation:

We will do weighted-average

Bond A represent 300,000/1,000,000 = 3/10 and has a duraction of 2 years

so 3/10 x 2 = .6

Bond B represent 300,000/1,000,000 = 3/10 and has a duraction of 1.7 years

son 3/10 x 1.7 = 0.51

Bond C represent 400,000/1,000,000 = 4/10 and has a duraction of 2.5 years

so 4/10 x 2.5 = 1

now we add the weighted together: .6 + .51 + 1 = 2.11