Effect of mixing bonds on duration
Quantitative Finance
Level
3
A portfolio consists of equal proportions (by price) of a 5 year bond with a duration of 4.3, a 10 year bond with a duration of 7.1 and a 15 year bond with a duration of 11.1. What is the duration of the portfolio?
The answer is 7.5.
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1 solution
The duration of a portfolio is the weighted average of the the duration of the assets that are part of that portfolio and their weights.