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b. John needs to pay $55,000, $60,000 and $65,000 at the end of next 3 years respectively. The market interest rate is 4% per annum.
b. John needs to pay $55,000, $60,000 and $65,000 at the end of next 3 years respectively. The market interest rate is 4% per annum.
i. What will be the duration of Johns payment obligation?
ii. Suppose John plans to fully fund the obligation using both 6-month zero coupon bonds and perpetuities. Determine how much (in market value) of each of these bonds John will hold in the portfolio.
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