A bond portfolio consists of a AAA bond, a AA bond, and an A bond. The prices of the bonds are $1,050, $1,000, and $950 respectively. The durations are 8, 6, and 4 respectively. What is the duration of the portfolio? A. 6.00. B. 6.67. C. 6.07.
The duration of a bond portfolio is the weighted average of the durations of the bonds in the portfolio. The weights are the value of each bond divided by the value of the portfolio:
