1. Calculate the value of the company’s debt portfolio using the data shown above. Assume that Celtic Dream Ltd. finances 70% of its balance sheet with its bonds.
2. Calculate the duration of each bond and explain what these duration values imply. Calculate the duration of the company’s bond portfolio.
The company’s debt portfolio consists of the following bonds.
Corporate Debt Portfolio
Bond Issue: Nominal Value (Euro €)
4.5% Celtic Dream Ltd. Corporate Bond 2016 200,000,000
5.0% Celtic Dream Ltd. Corporate Bond 2018 300,000,000
6.0% Celtic Dream Ltd. Corporate Bond 2020 500,000,000
7.5% Celtic Dream Ltd. Corporate Bond 2029 900,000,000
*** Assume all bonds follow calendar year. Eg 4.5% Celtic Dream Ltd. 2016 matures 31.12.2016, and that all bonds pay coupon semi-annually. (It is 1 January 2015)
The following interest rates currently apply in the market.
Zero- Interest Rates
Maturity: 6mths 12mths 18mths 24mths
Yield : 0.5% 0.65% 0.80% 1.10%
Corporate Bond Yields
Maturity: 2 yr 4yr 10yr 15yr
Yield : 1.0% 2.3% 2.8% 1.10%
Would appreciate all the help I can get. Thanks in advance.