Categories:
- Convertible: Caesars Entmt Corp – CZR4551670
- Non-convertible: T-Mobile USA Inc – TMUS4307780
- Credit rating – any investment grade: Kraft Heinz Foods Co – BRK4362687
- Credit rating – any non-investment grade (e.g., junk or high-yield): Carnival Corp – CCL.GC
- Maturity – maturity within 10 years: Chobani LLC – CHBI4480359
- Maturity – longer than 10 years: CVS Health Corp – CVS.HA
- Callable: Nissan Motor Co., LTD. – NSAN5044178
- Puttable: SHERWIN-WILLIAMS CO MEDIUM TERM NTS BOOK – SHW.GE
In your paper,
- Use your chosen bonds from Week 1 and calculate the Macaulay and modified durations for each bond. Show your calculations.
- Choose two bonds, and construct an equally weighted portfolio.
- Determine the cash flow yield of this portfolio.
- Determine the Macaulay duration of the portfolio using the weighted average of time-to-receipt of the aggregate cash flows method.
- Determine the modified duration of this portfolio. Please see section 3.5 of Chapter 4 for an example.
- Using all your bonds, construct an equally weighted portfolio.
- Determine the average Macaulay duration of this portfolio using the weighted average of the individual bond durations that comprise the portfolio.
- Determine the average modified duration of this portfolio using the weighted average approach.
- Estimate the percentage loss in the portfolio’s market value if the (annual) yield-to-maturity of each bond goes up by 25 basis points (bp), 50 bp, and 100 bp.
- Research and review at least two articles about the current market expectations for interest rates, which have been published within the last six months. Based on these articles,
- Summarize your research and analysis, and describe whether this bond portfolio is likely to gain or lose market value in the next six months.
- Estimate how large this gain or loss might be.
- Based on this opinion, recommend one change to this bond portfolio to lower the interest rate risk of the portfolio. You may remove one bond and replace it with one bond currently available on the market. You must continue to have a total of eight bonds in the portfolio.
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