Student Lounge Calculation of duration of bond/bond portfolio

Calculation of duration of bond/bond portfolio

  • Author
    • Avatar of SnippySnippy
        • CFA Level 2

        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 company’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 company’s bond portfolio.

        The company’s debt portfolio consists of the following bonds.


        Corporate Debt Portfolio


        Bond Issue:                                                                                        Nominal
        Value (Euro €)

        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.



      • Avatar of leahleah
          • Undecided

          Hi, Did you get the solution?

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