Finance 631 – Fixed Income Securities and Markets
Summer 2020
Graduate Student Project
Project: Create and analyze 3 bond portfolios.
You will need to build 3 separate bond portfolios: 10 U.S. Treasury bonds, 10 municipal tax-exempt bonds, 10 corporate bonds. You may choose whatever individual bonds you like from the www.finra.org webpage but try to space out the maturities among the 10 bonds (i.e. have some short-term and long-term bonds). Choose the bonds from 10 different issuers for the corporate and municipal bonds. Obviously you don’t have to worry about that with the US Treasury bonds.
Once you are on the Finra webpage, go to Investors, then Tools and Calculators, then Finra Market Data, then Bonds, and then go to the search box. Click on either corporate, government, or municipal bonds. Then you can enter a ticker symbol or issuer name to find the bonds available for that issuer. If you don’t put in an issuer name or symbol, you can just click show results and it will show all the bonds in its database. Choose 10 examples of each and record all of the data for that bond. Include in your spreadsheet, all of the information about each bond including the issuer name, symbol, coupon rate, maturity, bond rating, last sale price, and last sale yield (YTM).
NOTE: The Finra pages are not always complete. If you choose a bond and it doesn’t have all the information necessary for this project (especially the latest price and yield), choose another bond the does have complete information.
After creating the 3 portfolios (total of 30 different bonds), you need to calculate the duration of each individual bond using the Excel DURATION function and using the date you downloaded the data as the current settlement date. Then using the modified duration formula the textbook and PPT notes, calculate the percentage price change for a 1% rise and a 5% rise in interest rates.
Now calculate the duration of each portfolio assuming an equal weighting for each of the 5 bonds. Using the modified duration formula, estimate the percentage change in price for each of the 3 portfolios for a 1% rise in interest rates and for a 5% rise in interest rates. (You can use the average yield to maturity within each portfolio as an estimate of today’s interest rate.)
All graduate students are required to complete the Graduate Project. Undergraduate students may complete the Graduate Project for up to 25 points of extra credit. Do all of your work in Excel and create an Excel spreadsheet that is easy to follow and read. Save your spreadsheet with your name in the file name. UPLOAD your completed spreadsheet into Blackboard by Tuesday, June 23, 2020 by 11pm.
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