Problem 13-10
A university endowment fund has sought your advice on its fixed-income portfolio strategy. The characteristics of the portfolio's current holdings are
listed below:
Credit Maturity Coupon Modified
Market Value
Bond
Rating (yrs.) Rate (%) Duration Convexity of Position
A
U.S. Govt.
3
0
2.709
9.7
$31,000
B
A1
10
9
6.404
56.1
31,000
C
Aa2
5
12
3.654
18.5
31,000
D
Agency
7
10
4.868
32.3
31,000
E
Aa3
12
0
11.149
128.9
31,000
$155,000
a. Calculate the modified duration for this portfolio (i.e., Mod Dp). Do not round intermediate calculations. Round your answer to three decimal
places.
years
b. Suppose you learn that the implied sensitivity (i.e., modified duration) of the endowment's liabilities is about 6.30 years. Identify whether the
bond portfolio is: (1) immunized against interest rate risk, (2) exposed to net price risk, or (3) exposed to net reinvestment risk.
The portfolio's duration is Select
the liability's duration, portfolio is Select
