You are managing a portfolio of $1.0 million. Your target duration is 16 years, and you can choose from two bonds: a zero-coupon bon with maturity five years and a perpetuity, each currently yielding 5%. Required: a. How much of (1) the zero-coupon bond and (i) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is complete and correct. 31.25 % 68.75 % Zero-coupon bond Perpetuity bond b. How will these fractions change next year if target duration is now fifteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is complete but not entirely correct. 37.50% 62.50 % Zero-coupon bond Perpetuity bond
You are managing a portfolio of $1.0 million. Your target duration is 16 years, and you can choose from two bonds: a zero-coupon bon with maturity five years and a perpetuity, each currently yielding 5%. Required: a. How much of (1) the zero-coupon bond and (i) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is complete and correct. 31.25 % 68.75 % Zero-coupon bond Perpetuity bond b. How will these fractions change next year if target duration is now fifteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is complete but not entirely correct. 37.50% 62.50 % Zero-coupon bond Perpetuity bond
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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Vijay shiyal
Transcribed Image Text:You are managing a portfolio of $1.0 million. Your target duration is 16 years, and you can choose from two bonds: a zero-coupon bon
with maturity five years and a perpetuity, each currently yielding 5%.
Required:
a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
Answer is complete and correct.
31.25
68.75 %
Zero-coupon bond
Perpetuity bond
b. How will these fractions change next year if target duration is now fifteen years? (Do not round intermediate calculations. Round
your answers to 2 decimal places.)
Answer is complete but not entirely correct.
37.50
62.50 %
Zero-coupon bond
Perpetuity bond
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