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 five years, and a perpetuity, each currently yielding 5%. a. (Immunization) How much of each bond will you hold in your portfolio (in percentage)? b. (Rebalance) How will these fractions change next year if target duration is now nine years?

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 five years, and a perpetuity, each currently yielding 5%. a. (Immunization) How much of each bond will you hold in your portfolio (in percentage)? b. (Rebalance) How will these fractions change next year if target duration is now nine years?

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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