Bond Portfolio Created
Issuer Name
Symbol
Convertible or non convertible
Coupon
Maturity Date
Credit rating S&P
Last Price – sale
Last Price -yield
Callable Bond / Puttable bond
Johnson & Johnson
JNJ.GP
NO
5.95
8/15/2037
AAA
145.947
2.474
Callable
Coca Cola Enterprise Inc
KO3669981
NO
5.71
3/18/2037
A+
106.551
5.152
Puttable
NIKE
NKE4416427
NO
2.375
11/1/2026
AA-
106.156
1.122
Callable
BANK OF AMERICA
BAC4354159
NO
3.5
4/18/2026
A-
110.308
1.273
Callable
MICROSOFT
MSFT3926358
NO
2.125
11/15/2022
AAA
102.49
0.287
Callable
AMAZON
AMZN3936284
NO
2.5
11/29/2022
AA
102.753
0.121
Callable
SALESFORCE
CRM4619522
NO
3.7
4/11/2028
A+
113.817
1.468
Callable
DISHNETWORK
DISH4532126
YES
3.375
08/15/20226
CCC+
103.178
2.704
Callable
As the newly hired financial advisor at a money management firm, you have been asked to review the interest rate risk of the bond portfolio constructed for the client in the Client Bond Portfolio Role. You must construct an Exchange Recommendation Report for the client.
In this Exchange Recommendation Report, consider the interest rate risk of the current eight bond portfolio, as demonstrated by the Macaulay and average modified durations of the portfolio. Evaluate current market expectations for interest rate movements. Provide an analysis to the client regarding the likely gains or losses in the market value of this bond portfolio, based on your evaluation of current market expectations for interest rate movements. Finally, recommend one bond to remove from the portfolio, and exchange with another fixed income security, in order to lower the interest rate risk within the portfolio.
In the paper,
Use your chosen bonds provided 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.
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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