You are managing a portfolio of $2 million. Your target duration is 13.5 years, and you choose to invest in a combination of a zero coupon bond with maturity six years and a perpetuity, each currently yielding 5%. In exactly one year, your target duration will be 12.5 years. At that time, if the yields on the zero coupon bond and the perpetuity do not change, the investment amounts in your portfolio should be: A $984,375 and $1,115,625 respectively B. $937,500 and $1,062,500 respectively C. $1,062,500 and $937,500 respectively D. $1,115,625 and $984,375 respectively E. None of the above
You are managing a portfolio of $2 million. Your target duration is 13.5 years, and you choose to invest in a combination of a zero coupon bond with maturity six years and a perpetuity, each currently yielding 5%. In exactly one year, your target duration will be 12.5 years. At that time, if the yields on the zero coupon bond and the perpetuity do not change, the investment amounts in your portfolio should be: A $984,375 and $1,115,625 respectively B. $937,500 and $1,062,500 respectively C. $1,062,500 and $937,500 respectively D. $1,115,625 and $984,375 respectively E. None of the above
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:You are managing a portfolio of $2 million. Your target duration is 13.5 years, and you choose
to invest in a combination of a zero coupon bond with maturity six years and a perpetuity,
each currently yielding 5%. In exactly one year, your target duration will be 12.5 years. At
that time, if the yields on the zero coupon bond and the perpetuity do not change, the
investment amounts in your portfolio should be:
A $984,375 and $1,115,625 respectively
B. $937,500 and $1,062,500 respectively
C. $1,062,500 and $937,500 respectively
D. $1,115,625 and $984,375 respectively
E. None of the above
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