You are managing a portfolio of $1 million. Your target duration is 10 years, and you can invest in two bonds, a zero-coupon bond withmaturity of five years and a perpetuity, each currently yielding 7.0%.Required:a. What weight of each bond will you hold to immunize your portfolio?b. How will these weights change next year if target duration is now nine years?Complete this question by entering your answers in the tabs below.Required A Required BWhat weight of each bond will you hold to immunize your portfolio?Note: Round your answers to 2 decimal places.Zero-coupon bondPerpetuity bond%%

Answer is given below Explanation:a)Duration of Perpetuity = (1+.07)/.07 = 15.2857 yearsSubstituting…

Answered: You are managing a portfolio of $1…

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 million. Your target duration is 10 years, and you can invest in two bonds, a zero-coupon bond with maturity of five years and a perpetuity, each currently yielding 10.0%. a. What weight of each bond will you hold to immunize your portfolio? (Round your answers to 2 decimal places.) b. How will these weights change next year if target duration is now nine years? (Round your answers to 2 decimal places.)
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You are managing a portfolio of $1 million. Your target duration is 10 years, and you can invest in two bonds, a zero-coupon bond with maturity of five years and a perpetuity, each currently yielding 5%.a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio?b. How will these fractions change next year if target duration is now nine years?
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