Compute the duration of the portfolios

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Reference no: EM131960366

An investor is planning a $100 million short-term investment and is going to choose among two different portfolios. This investor is seriously worried about interest rate volatility in the market. Compute the duration of the portfolios. Which one is more adequate for the investor’s objective? Assume today is May 15, 2000, which means you may use the yield curve presented in the following table:

Maturity T Yield r2 (0, T)

0.50 6.49%

1.00 6.71%

1.5 6.84%

2 6.88%

• Portfolio A – 40% invested in 1.5-year zero coupon bond

– 60% invested in 1.5-year coupon bond paying 9% annually

• Portfolio B – 50% invested in 2-year zero coupon bond

– 50% invested in 1.5-year floating rate bond with zero spread and annual payments

Reference no: EM131960366

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