For Q4 of this topic test case, do we need to use the information at the end of the question at all? i.e. assuming new investments are in equal proportions of one-third of each bond. I have successfully calculated the Dollar Duration ratio of 26.9%, so I used the formula:
Required New value of Bond = (1 + % increase in DD) * MV
MV = Required New value of Bond / (1 + % increase in DD) = (1+1/3)*(9,975,000 + 9,500,000 + 10,240,000) / (1+26.9%) = 31,210,511
Obviously there’s no such option. But I also don’t understand why the answer didn’t use the information about using 1/3 of each bond.
Can any one help me understand the question? Or maybe I’m just over thinking this. Thanks.