Book 5, page 86 (2006): US Tres. Strips followed by market value : (2 year, 50) (7 year, 100) (15-year 100) (25-year 50) … Total Market Value = 300 A. What is the Mac. Duration for this portfolio B. With regard to this particular portfolio, what is the primary diff. between Mod D and Eff D?
because they’re strips, their duration is the same as the years so apply on a weighted average on the market value (not book value) 2(50/300)+7(100/300)+15(100/300)+25(50/300) = Portfolio Duration
Since they are option free bonds, effective duration=modified duration…