1. What is dollar duration? How is dollar duration different from duration?
2. Define Spread duration. Calculate the duration and the spread duration for the portfolio described in the Table below. What does each concept measure?
Which concept is suitable for measuring IR risk of a portfolio of floating rate bonds? Why?
|
Bonds from 6 Sectors
|
Sector Weight in portfolio,
Wi
|
Sector Duration Di
|
Sector Spread
Duration Di
|
|
Treasury
|
0.000
|
4.95
|
0.00
|
|
Agency
|
0.121
|
3.44
|
3.53
|
|
Mortgages
|
0.449
|
3.58
|
3.62
|
|
Commercial MBS
|
0.139
|
5.04
|
5.04
|
|
ABS
|
0.017
|
3.16
|
3.16
|
|
Credit
|
0.274
|
6.35
|
6.35
|