Suppose that all investors expect that interest rates for the 4 years will be as follows: Year Forward Interest Rate 0 1 2 3 4 % (today) 5 % 6% 7% If you have just purchased a 4-year zero-coupon bond, what would be the expected rate of return on your investment in the first year forward rates stay the same? (Par value of the bond = $1,000)

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A short question 4) You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity of 5 years, and a perpetuity*, each currently yielding 5%. a. How much of each bond will you hold in your portfolio? b. How will these ratios change next year if target duration is now 9 years? *: Perpetuity: a specal case of annuity, where n-> Inf, thus the maturity of the instrument is perpetual.

Q1. Consider the following par bond (ie coupon rate=yield):Year: 10 and 20 years . Yld 1.50% and 2.0%  Q1c. if you hold the 20Y for 1 year, what is your total return from the investment assuming yldcurve does not change ? Hint: your total return comes from coupon collection as well as price appreciation ordepreciation