LOS 38.c
Question I made up, see if you guys like it…
A portfolio manager has $10 million market value of fixed rate bonds with duration of 5.0. His has fixed rate liabilites of $5 million with duration of 7.0.
1) What is the equity value of his portfolio
2) What is the duration of the equity, and is it positive or negative
3) If rates increased by 1%, what would the value of the equity be
4) If rates decreased by 1%, what would the value of the equity be
5) If the manager added a pay floating / recieve fixed rate swap to reduce market value risk of his liabilites, and the swap had a net duration of -1.5 on notional principal of $1 million, what is the new duration of the equity?
Question I made up, see if you guys like it…
A portfolio manager has $10 million market value of fixed rate bonds with duration of 5.0. His has fixed rate liabilites of $5 million with duration of 7.0.
1) What is the equity value of his portfolio
2) What is the duration of the equity, and is it positive or negative
3) If rates increased by 1%, what would the value of the equity be
4) If rates decreased by 1%, what would the value of the equity be
5) If the manager added a pay floating / recieve fixed rate swap to reduce market value risk of his liabilites, and the swap had a net duration of -1.5 on notional principal of $1 million, what is the new duration of the equity?