Explanation:
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.
$120,000 / $300,000) * 5 = 0.4 * 5 = 2.00$180,000 / $300,000) * 4 = 0.6 * 4 = 2.40Why not A or C?
An investor gathers the following information about a bond portfolio comprised of two option-free bonds:
| Bond | Par Value | Market Value | Duration |
|---|---|---|---|
| 1 | $100,000 | $120,000 | 5 |
| 2 | $200,000 | $180,000 | 4 |
The duration of the portfolio is closest to:
A
4.33
B
4.40
C
4.55
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