A Bond Portfolio Consists of the Following Three Fixed-Rate Bonds

question 10

Multiple Choice

a bond portfolio consists of the following three fixed-rate bonds. assume annual coupon payments and no accrued interest on the bonds. Prices are per 100 of par value. $$\begin{array} { l r c c c c r } \text { Bond } & \text { Maturity } & \begin{array} { c } \text { Market } \\\text { Value }\end{array} & \text { Price } & \text { Coupon } & \begin{array} { c } \text { Yield-to- } \\\text { Maturity }\end{array} & \begin{array} { r } \text { Modified } \\\text { Duration }\end{array} \\\hline \text { A } & \text { 6 years } & 170,000 & 85.0000 & 2.00 \% & 4.95 \% & 5.42 \\\text { B } & 10 \text { years } & 120,000 & 80.0000 & 2.40 \% & 4.99 \% & 8.44 \\\text { C } & 15 \text { years } & 100,000 & 100.0000 & 5.00 \% & 5.00 \% & 10.38 \\\hline\end{array}$$ The bond portfolio's modified duration is closest to:

• A) 7.62.
• B) 8.08.
• C) 8.20.

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Definitions:

Units

A standard measure or quantity used to specify or quantify the amount of a product, service, or resource.

Prices

The amount of money required to purchase goods or services.

Marginal Cost

The additional cost incurred by producing one more unit of a product or service, crucial for economic and pricing decisions.

Marginal Revenue

The additional income received from selling one more unit of a product or service.