Merry Karthik is a bank executive who has just inherited a large sum of money.
Having spent several years in the bank’s investments department, he is well aware of the concept of duration – convexity and decides to apply it to his bond portfolio.
In particular, Merry intends to use RM1 million of his inheritance to purchase two Malaysian Treasury Bonds:
(a) Prepare the duration and the modified duration table of each bond.
(b) Find the duration of the portfolio if Merry allocates 70 percent into Bonds
GO190001 and 30 percent into Bond MO190002.