嘿,伙计们,这需要一些帮助s:
A portfolio's current value is $6 billion and its duration is 1.5 years. Use an example to explain how aportfolio manager can leveragethe existing portfolio to double the amount of assets in the original portfolio. Assume that the yield changes for all maturities are the same.
What is the duration of the new leveraged portfolio? If the volatility of yield change is 2%, what are the one-year 99% VaRs of the original and new leveraged portfolios, respectively?
My answer thus far (I think this is correct):
The portfolio manager could use thecurrent assets as collateralto borrow $6 billion, therefore doubling his assets.
VaR(original) = 2.33(1.5)(6 billion)(0.02)
What I need help is calculating the new duration - not quite sure how to go about doing that. Once I have that, I can use the equation above to get theVaRfor the leveraged portfolio. Am I on the right track?
Comments (2)
If you leverage the assets like you mentioned and just bought more of the same securities, your duration would double from 1.5 years to 3.0 years (twice as sensitive to interest rate changes).
Pretty much anyway you measure it, the risk will be twice as high in the leveraged portfolio, with less than twice the expected return (because of borrowing costs).
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