Question

# Today is 1 July 2019. Jenny has a portfolio which consists of three different types of financial instruments

(henceforth referred to as instrument A, instrument B and instrument C. Jenny purchased all instruments on 1 July 2017 to create this portfolio and this portfolio is composed of 50 units of instrument A, 78 units of instrument B and 105 units of instrument C)

• Instrument A is a zero-coupon bond with a face value of 100. This bond matures at par. The maturity date is 1 January 2030.

• Instrument B is a Treasury bond with a coupon rate of j2 = 3.08% p.a. and face value of 100. This bond matures at par. The maturity date is 1 January 202

• Instrument C is a Treasury bond with a coupon rate of j2 = 3.12% p.a. and face value of 100. This bond matures at par. The maturity date is 1 April 2022.

Instrument A has current bond price is 70.92 and duration is 10.5 years because its zero coupon

Given that instrument C has the duration of 2.638 years and the yield rate for this bond is j2 = 3.3% p.a. Without actually calculating the new price for instrument C, use the price from part a and the duration value to estimate (use the price sensitivity formula) the change in price of bond C that would result from an increase in yield rate (j2) of 10 basis points. Round your answer to two decimal places.