Question

You own a bond portfolio worth $187,000. You estimate that your portfolio has an average YTM of 7.5% and a Modified Duration of 20.5 years. If your portfolio's average YTM were to increase by 17 basis points overnight, what would be the approximate new value of your portfolio

Answer 1

$193,516.95

Step-by-step explanation:

If the YTM decreases, the bond prices will increase, and the value of the bond portfolio will increase.

Change in value of bonds = change in YTM * duration * current value of bonds

Change in value of bonds = 0.17% * 20.5 * $187,000 = $6516.95

New value of bond portfolio = $187,000 + $6516.95 = $193,516.95