Your friend invested part of their 401K portfolio in bonds. The bond investment has two major categories A - Bonds that have a 2 year duration (maturity) B - Bonds that have a 9-year duration (maturity). Required: Your friend told you that they have heard that interest rates will be decreasing in the near future. The question from your friend is
Your friend invested part of their 401K portfolio in bonds. The bond investment has two major categories A - Bonds that have a 2 year duration (maturity) B - Bonds that have a 9-year duration (maturity). Required: Your friend told you that they have heard that interest rates will be decreasing in the near future. The question from your friend is
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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Your friend invested part of their 401K portfolio in bonds. The bond investment has two major categories
A - Bonds that have a 2 year duration (maturity)
B - Bonds that have a 9-year duration (maturity).
Required: Your friend told you that they have heard that interest rates will be decreasing in the near future. The question from your friend is should they place all of their money that has been invested in bonds into the 2-year duration (maturity) portfolio or the 9-year duration (maturity). The goal is to increase the total value of the bond investment.
What is your answer and explain to your friend so they understand the concept?
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