Dear everyone,
I have a question related to the market values of the bonds!
From this photo, they calculate:
The market values of the bonds (Price × Par amount)
How should i understand?
Thanks in advance.
Question:
The following table provides information about a portfolio of three bonds.
| Bond | Maturity | Price | Par Amount | Duration |
|---|---|---|---|---|
| 1 | 17-year | $109.2461 | $16 million | 8.56 |
| 2 | 20-year | $100.4732 | $4 million | 9.19 |
| 3 | 25-year | $84.6427 | $8 million | 11.48 |
Based on this information, the duration of the portfolio is closest to:
- 9.48.
- 9.35.
- 9.74.
Solution
B is correct. The market values of the bonds (Price × Par amount) are $17,479,376, $4,018,928, and $6,771,416, respectively, for a portfolio value of $28,269,720.
