Suppose that the portfolio manager believes that for high-yield corporate bonds, the duration is 25% of the analytical duration
Based on that assumption, what is the true duration for the portfolio consisting of the investment-grade and high-yield corporate bonds?
In this problem, we assumethe durationis 25% of the analytical duration. This means that the duration of the high-yield corporate bonds is 0.25 × of 5.4 = 1.35 so that the true duration for the portfolio is(1 – 0.20)6.2 + 0.20(1.35)= 5.23 .
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