Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...
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Question
D2)
You are asked to invest $30 million in a bond portfolio consisting of only two bonds. Bond A has a yield of 6% and is a 5 year coupon bond a duration of 4.36 years, and bond B has a yield 7% and is a 7 year coupon bond duration of 6.50 years. The portfolio is to have an investment horizon of 5 years. How much of each bond issue would you have to buy to immunize the portfolio?
A. Invest in 70 percent bond A and 30 percent bond B.
B. Invest in 60 percent bond A and 40 percent bond B.
C. Invest in 30 percent bond A and 70 percent bond B
D. Invest in 40 percent bond A and 60 percent bond B
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