The Investment portfolio of a bank is as follows:
Government Bond, Coupon Rate, Purchase rate,Duration (Years)
(F.V. Rs. 100 per Bond)
G.O.I. 2006 11.68 106.50 3.50
G.O.I. 2010 7.55 105.00 6.50
G.O.I. 2015 7.38 105.00 7.50
G.O.I. 2022 8.35 110.00 8.75
G.O.I. 2032 7.95 101.00 13.00
Face value of total Investment is Rs. 5 crores in each Government Bond.
Calculate actual Investment in portfolio.
What is a suitable action to churn out investment portfolio in the following scenario?
1. Interest rates are expected to lower by 25 basis points.
2. Interest rates are expected to raise by 75 basis points.
Also calculate the revised duration of investment portfolio in each scenario.
Can anybody please provide the solution to this question??
And please explain on what basis is the decision being made?? And the relevance of Duration conceptually and in decision making in this problem??
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