You are managing a portfolio of $1.0 million. Your target duration is 18 years, and you can choose from two bonds: a zero-coupon bond with maturity five years and a perpetuity, each currently yielding 4%. 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.) zero-coupon __% perpetuity bond __% b. How will these fractions change next year if target duration is now seventeen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) zero-coupon __% perpetuity bond __%
You are managing a portfolio of $1.0 million. Your target duration is 18 years, and you can choose from two bonds: a zero-coupon bond with maturity five years and a perpetuity, each currently yielding 4%. 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.) zero-coupon __% perpetuity bond __% b. How will these fractions change next year if target duration is now seventeen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) zero-coupon __% 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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You are managing a portfolio of $1.0 million. Your target duration is 18 years, and you can choose from two bonds: a zero-coupon bond with maturity five years and a perpetuity, each currently yielding 4%.
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.)
zero-coupon __%
perpetuity bond __%
b. How will these fractions change next year if target duration is now seventeen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
zero-coupon __%
perpetuity bond __%
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