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Consider following two bonds: Maturity Coupon YTM Bond 1 4 years 6% 5% Bond 2 8 years 7% 5% Coupon frequency and compounding frequency are

Consider following two bonds:

Maturity Coupon YTM

Bond 1 4 years 6% 5%

Bond 2 8 years 7% 5%

Coupon frequency and compounding frequency are assumed to be annual.

What should be the weight of Bond1 and Bond2 if your investment horizon is six years and you want to be hedged against small changes in interest rates?

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