2016 AM question 2b: We are supposed to calculate the minimum change in yield that would eliminate Tauravia’s quarterly yield advantage vs Scorponia. The quarterly yield advantage vs Scorponia is 80 bps. The duration of Tauravia is 8, however the country beta is 0,5 for an investor based in Scorponia. In spread widening analysis we are supposed to use the higher of the two bonds’ duration. Scorponia’s duration is 7,5 and Tauravia is 8, however the country premium for Tauravia for an investor based in Scorponia is 0,5. Hence I calculated the duration of Tauravia as 4 and based my calculation on 80/7,5. Could anybody explain why we do not need to take the country beta into account here? The solution is to use 80/8.
Btw, am I right that there is no search function on this forum?