) USING DOLLAR DURATION AND THE DATA IN EXHIBIT 1, HOW MUCH CASH DOES MARKOV'S CLIENT NEED TO REBALANCE THE PORTFOLIO, ASSUMING NEW INVESTMENTS ARE IN EQUAL PROPORTIONS OF ONE-THIRD OF EACH BOND
4.) Using dollar duration and the data in Exhibit 1, how much cash does Markov's client need
to rebalance the portfolio, assuming new investments are in equal proportions of one-third
of each bond?
A.
$7,993,335.
B.
$28,618,000.
C.
$8,098,245.
Answer = A
First calculate the dollar duration initially and after the shift in interest rates, as shown
in the table below:
Market Value Duration Dollar Duration Market Value Duration Dollar Duration
$10,435,000
5.5
$573,925
$9,975,000
4.7
$468,825