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NEW QUESTION: 1
An investor holds $1m in face each of two bonds. Bond 1 has a price of 90 and a duration of 5 years. Bond 2 has a price of 110 and a duration of 10 years. What is the combined duration of the portfolio in years?
The value of Bond 1 is $900,000 and the value of Bond 2 is $1,100,000, or their respective weights in the portfolio are 45% and 55% respectively. The combined duration is the weighted average of their individual durations, ie (45% x 5) + (55% x 10) = 7.75 years