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The following table shows the Macaulay duration and modified convexity of 3 bond portfolios: DMac CMod Portfolio A 5.82 Portfolio B 6.16 Portfolio C...
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The following table shows the Macaulay duration and modified convexity of 3 bondportfolios: DMac CMod Portfolio A 5.6 48.82 Portfolio B 6.2 42.16 Portfolio C 7.2 56.21 Portfolio D 9.3 95.04The tern structure is assumed to be flat and the current annual effective interest rate isto = 4%. (a) An investor expects that the interest rate is likely to raise in future and wishes todo a bond investment for 7 years. Suppose that an investor wishes to earn areturn higher than i0 = 4%, which portfolio (A, B, C or D) should he consider?Choose the best answer and explain your answer. (b) An investor expects that the interest rate is likely to drop in future and wishes todo a bond investment for 6 years. Suppose that an investor wishes to earn areturn higher than to = 4%, which portfolio (A, B, C or D) should he consider?Choose the best answer and explain your answer.