Student Lounge Calculation of duration of bond/bond portfolio

# Calculation of duration of bond/bond portfolio

• Author
Posts
• Snippy
Participant
• CFA Level 2
1

Hey guys,

I know I haven’t posted in years but I’ve been busy and hence rusty with most concepts. Hence, I need help in this problem set.

This is the question:

1. Calculate the value of the companyâ€™s debt portfolio using the data
shown above. Assume that Celtic Dream Ltd. finances 70% of its balance sheet
with its bonds.

2. Calculate the duration of
each bond and explain what these duration values imply. Calculate the duration
of the companyâ€™s bond portfolio.

The companyâ€™s debt portfolio consists of the following bonds.

Corporate Debt Portfolio

Bond Issue:                                                                                        Nominal
Value (Euro â‚¬)

4.5% Celtic Dream Ltd. Corporate Bond 2016                                           200,000,000

5.0% Celtic Dream Ltd. Corporate Bond 2018                                           300,000,000

6.0% Celtic Dream Ltd. Corporate Bond 2020                                           500,000,000

7.5% Celtic Dream Ltd. Corporate Bond 2029                                           900,000,000

*** Assume all bonds follow calendar year. Eg 4.5% Celtic Dream Ltd. 2016
matures 31.12.2016, and that all bonds pay coupon semi-annually. (It is 1 January 2015)

The following interest rates currently apply in the market.

Zero- Interest Rates

Maturity:             6mths                   12mths                 18mths                 24mths

Yield :                    0.5%                      0.65%                    0.80%                    1.10%

Corporate Bond Yields

Maturity:             2
yr                         4yr                          10yr                       15yr

Yield :                    1.0%                      2.3%                      2.8%                      1.10%

Would appreciate all the help I can get. Thanks in advance.

• leah
Participant
• Undecided
5

Hi, Did you get the solution?