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Exam 2016-FRR Topic 2 Question 22 Discussion

Actual exam question for GARP's 2016-FRR exam
Question #: 22
Topic #: 2
A bank owns a portfolio of bonds whose composition is shown below.

What is the modified duration of the portfolio?

Suggested Answer: D Vote an answer

* Calculate the weighted average of modified durations:
* The modified duration of the portfolio is a weighted average of the durations of the individual bonds, where the weights are the proportions of the total portfolio value.
* Calculate the total value of the portfolio: $200 MM (3-year floater) + $120 MM (5-year floater) +
$50 MM (10-year fixed) = $370 MM.
* Calculate the weights for each bond:
* 3-year floater: $200 MM / $370 MM = 0.5405
* 5-year floater: $120 MM / $370 MM = 0.3243
* 10-year fixed: $50 MM / $370 MM = 0.1351
* Multiply each bond's weight by its modified duration and sum the results:
* (0.5405 * 0.25) + (0.3243 * 0.25) + (0.1351 * 8) = 0.1351 + 0.0811 + 1.081 = 1.297
* Therefore, the weighted average modified duration is approximately 1.30.
ReferencesCalculation based on standard formula and weights derived from the table.

by Augus at Nov 19, 2025, 04:17 PM

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