Assume that the yield curve for the data of Problem 3 is 10%. Further assume that the three bonds…

Assume that the yield curve for the data of Problem 3 is 10%. Further assume that the three bonds are of equal value and the only bonds existing. Set up a single index representation of their covariance. What is the covariance between all pairs of bonds?

Problem 3

Given the following bonds:

construct three different portfolios of the three bonds, each with a duration of nine years.

 

 

 

 

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