# Fixed Income Topic Test - Chesapeake

Hi all

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

Hence:

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.

Regards,

Song

You simply have to increase DD by multiplying ratio of 0.269 with total Market value of bond portfolio 1Y later for rebalancing. The confusing is requirement for 1/3 but this simply means that all bonds are equally weighted regarding its dollar duration. If they had not mentioned the 1/3 ratio, you probably would know what should you do. There are many such ambiguous traps in questions and Mocks. Revise and keep going.

Ah I see what you mean…tricky phrasing indeed. Gotta watch out for these. Thanks a lot for the explanation.

Hi MissSongJ

No problem. You are welcome.