An investor has the portfolio below: 40%invested in 6-year zero coupon bond 20%invested in 4-year...
70.2K
Verified Solution
Link Copied!
Question
Finance
An investor has the portfolio below: 40%invested in 6-year zero coupon bond 20%invested in 4-year coupon bonds paying 3.5% semi-annually 40%invested in 2 1/2-year floating rate bonds with zero spread paid quarterly (its convexity is squared duration in this case) You are told that the mean of daily change in interest rates is zero and that the variance of the daily change of interest rates is 3.451*10^(-7) What is the annualized expected return taking into account convexity? Consider 252 trading days a year.
