An individual has a portfolio that consists of 1) a three year zero coupon bond with a maturity value of $5000 and a yield of 5% 2) a four year zero coupon bond with a maturity value of $5000 and a yield of 6% and 3) a perpetuity of dividends from a common stock, where the first dividend is $100 and is paid one year from now, and each dividend is 3% higher than the prior one. The yield is 6%. What is the duration of this portfolio
An individual has a portfolio that consists of 1) a three year zero coupon bond with a maturity value of $5000 and a yield of 5% 2) a four year zero coupon bond with a maturity value of $5000 and a yield of 6% and 3) a perpetuity of dividends from a common stock, where the first dividend is $100 and is paid one year from now, and each dividend is 3% higher than the prior one. The yield is 6%. What is the duration of this portfolio
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:An individual has a portfolio that
consists of
1) a three year zero coupon bond with
a maturity value of $5000 and a yield
of 5%
2) a four year zero coupon bond with a
maturity value of $5000 and a yield of
6% and
3) a perpetuity of dividends from a
common stock, where the first
dividend is $100 and is paid one year
from now, and each dividend is 3%
higher than the prior one. The yield is
6%.
What is the duration of this portfolio
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