Assume annual coupons

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Consider two portfolios A and B. The details are as follows

Portfolio A: Six 12% coupon 2-Year Bonds, eight 3-Year 6% coupon Bonds

Portfolio B: Five 10% coupon 1-Year Bonds, seven 3-Year 9% coupon Bonds. The current term structure is as follows

1-Year: 5%, 2-Year: 5.35%, 3-Year: 5.85%, 4-Year: 5.95%,

What are the key rate Durations for the one, two and three years of each portfolio, their effective durations and what are the changes in value for a 50bps increase in the 1-year rate, 50 bps decrease in the two year rate and a 25 bps increase in the 3-Year rate. Assume annual coupons.

Reference no: EM131855644

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