AuthorTopic: Session 14 Review Question
MGM13
@2005-04-17 23:21:08
I am confused about the answer to one RQ from SS14. The question give a table of zero cpn bonds and their portfolio weights and asks what type of portfolio it is (ladder, barbell, bullet, none of these). Here is the table:

Term Portfolio Weight
1 yr. 40%
10 yr. 40%
30 yr. 20%

Based on this, I said "None of these."

The answer has a different table, telling you to look at the key rate durations and not the portfolio weights to determine portfolio type. This makes sense, but we are not given the KRDs in the original question. Also, the port. wieghts are different in the answer than in the question! Answer table is:

Term Portfolio Weight KRD
1 yr. 80% 0.9
10 yr. 16% 1.6
30 yr. 4% 0.8

Well, it's obvious that based on THIS table that it is a barbell portfolio. If not given KRDs, how do you calculate them (if possible) from the original table I cite above? Thanks.
evica
@2005-04-18 11:24:45
There must a mistake in the question.
hkcfa2
@2005-04-19 01:27:10
If you are given the weights, and all bonds are zeros which means their durations = maturities, you can know the distributions of key rate durations of the portfolio, and thus know what type it is. The question is fine I believe.