fm3_problems26 - Note: This is not a proof, but it explains...

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YTM 7% Total investment in bonds 1,000 Proportion of bond A in portfolio 30% Proportion of bond B in portfolio 70% #MACRO? Dollar amount of A purchased 300 #MACRO? Dollar amount of B purchased 700 #MACRO? Percentage of face value of A purchased 30.00% #MACRO? Percentage of face value of B purchased 49.25% #MACRO? Year 1 70 0.0654 130 2 70 0.1223 130 3 70 0.1714 130 4 70 0.2136 130 5 70 0.2495 130 6 70 0.2799 130 7 70 0.3051 130 8 70 0.3259 130 9 70 0.3427 130 10 1070 5.4393 1130 Bond price Duration Bond price $1,000 7.5152 $1,421 =NPV(B3,B6:B15) Weighted portfolio durations 6.98 #MACRO? Note that because we purchase $700 of bond B, which costs $1421, we're only purchasing 49.25% of the bo Note: This is not a proof, but it explains the logic C t,A t*C t,A /(P A *(1+YTM) t ) C t,B
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0.0855 85.02 0.0795 0.08 0.1598 85.02 0.1485 0.2240 85.02 0.2082 0.2791 85.02 0.2594 0.3260 85.02 0.3031 0.3657 85.02 0.3399 0.3987 85.02 0.3706 0.4258 85.02 0.3959 0.4477 85.02 0.4162 4.0413 877.49 4.4607 Duration 6.7535 $1,000
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This note was uploaded on 01/23/2011 for the course FGB 780 taught by Professor Edwardchang during the Spring '09 term at Missouri State University-Springfield.

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fm3_problems26 - Note: This is not a proof, but it explains...

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