Managing the interest rate risk of portfolio

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You are the portfolio manager at Koala Investments, and you are currently managing a portfolio that contains corporate bonds with embedded call options.

Briefly explain how you would value the callable bonds in your portfolio.

If one of the bonds in the portfolio is also convertible, how would you adjust your answer to a. in order to value this bond? If the value of the underlying stock increased significantly while interest rates fell only marginally, what would be the likely effect on the value of this bond?

When managing the interest rate risk of your portfolio you should not use the same measures as with a portfolio of option-free bonds. Briefly explain why this is the case and identify one measure that would be helpful in managing the interest rate risk of your portfolio.

Reference no: EM132908421

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