The correct answer is B (4.40). The portfolio's duration is calculated as the weighted average of the durations of the individual bonds, using their market values as weights.

• Calculation:
  • Bond 1: ($120,000 / $300,000) * 5 = 0.4 * 5 = 2.00
  • Bond 2: ($180,000 / $300,000) * 4 = 0.6 * 4 = 2.40
  • Total Duration: 2.00 + 2.40 = 4.40

Why not A or C?

• A (4.33): Incorrect because it uses par value instead of market value for weighting.
• C (4.55): Incorrect because it weights the bonds by their durations, which is not the standard method for calculating portfolio duration.