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Hi, can someone help explain the principles behind this question?

FRM Exam 2004 Qn 45

With LIBOR at 4%, a manager wants to increase the duration of his portfolio. Which of the following securities should he acquire to increase the duration of his portfolio the most?

a) a 10-year reverse floater that pays 8% - LIBOR, payable annually

b) a 10-year reverse floater that pays 12% - 2 x LIBOR, payable annually

c) a 10-year floater that pays LIBOR, payable annually

d) a 10-years fixed rate bond carrying a coupon of 4% payable annually

Ans b

The duration of a floater is about zero. The duration of a 10-year regular bond is about 9 years. The first reverse floater has a duration of about 2 x 9 = 18 years, the second, 3 x 9 = 27 years.

How do you get 18 and 27 years?

Thks in advance!

FRM Exam 2004 Qn 45

With LIBOR at 4%, a manager wants to increase the duration of his portfolio. Which of the following securities should he acquire to increase the duration of his portfolio the most?

a) a 10-year reverse floater that pays 8% - LIBOR, payable annually

b) a 10-year reverse floater that pays 12% - 2 x LIBOR, payable annually

c) a 10-year floater that pays LIBOR, payable annually

d) a 10-years fixed rate bond carrying a coupon of 4% payable annually

Ans b

The duration of a floater is about zero. The duration of a 10-year regular bond is about 9 years. The first reverse floater has a duration of about 2 x 9 = 18 years, the second, 3 x 9 = 27 years.

How do you get 18 and 27 years?

Thks in advance!

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