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An investment company has a time horizon of 3.7 years It's portfolio is invested in 5% 4-year annual payment coupon bonds The portfolio has a

An investment company has a time horizon of 3.7 years

 

 

 

 

It's portfolio is invested in 5% 4-year annual payment coupon bonds

 

 

 

 

The portfolio has a par value of $2M and current yields are 5.5%

 

 

 

 

 

a.Is the portfolio immunized when the bonds were purchased?   

Full credit requires calculations to support your answer

 

b.  Would the portfolio be immunized in year 2?

 

c.  If the firm wanted rebalance the portfolio in year 2 using a 1-year 6% zero coupon bond, what proportion of the original portfolio should it be?

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a No the portfolio is not immunized when the bonds were purchased This can be determined by calculating the duration of the portfolio The duration of ... blur-text-image

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