You own a bond portfolio worth $250,218. You estimate that your portfolio has an

Question

You own a bond portfolio worth $250,218. You estimate that your portfolio has an average yield-to-maturity of 3.7% and Macaulay Duration of 14.4 years. If interest rates went down one percentage point and your portfolio's yield-to-maturity changed by the same amount, what would be the new value of your bond portfolio?

Step 1: Compute DV01 as the portfolio's MacD divided by 1 plus the portfolio's YTM, multiplied by the value of the portfolio and divided by 100.

Step 2: Compute the change in the portfolio's value based on its starting value given in the question and the estimated change in value from Step 1).

The new portfolio value would be $ ___________ (Round to a whole number.)

Explanation / Answer

Value of Bond Portfolio =$250,218

Average Yield to Maturity =3.70%

Macculay's Duration = 14.4 years

Change in Interest Rates = -1.00%

New Value of Bond Portfolio =??

DV01 = 14.40/(1+0.037) x 250,218/100 =13.8862 x 2,502.18 =$34,745.79

New Portfolio Value = $250,218 + 34,745.79 =$284,963.79

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.