Daniel would like to diversify his portfolio in order to offset any negative fluctuations in his stock holdings. He is considering investing $10,000 in Treasury securities and is looking at a few alternatives. Create two portfolios with a Macaulay duration of 5 years. (There are more than two possible portfolios with Macaulay durations of 5 years but create only two.)

What of the two portfolios that you created should Daniel choose? Why?

 

1.49 Convexity duration duration Price Yield yield/2 Coupon payment Maturity Type 1.00 0.97 94.44 5.80% 2.90% 0.00% 0.00 T-bill 1.91 100.09 6.15% 3.075% 6.20% 3.10 4.43 8.90 21.31 Macaulay Modified 64.77 2.78 4.34 7.38 265.30 13.31 1.85 2.69 4.20 7.14 12.86 semi- ann. 100.27 6.30% 3.15% 6.40% 3.20 100.42 6.50% 3.25% 6.60% 3.30 101.80 6.75% 3.375% 7.00% 3.50 88.09 6.95% 3.475% 6.00% 3.00 1 2 2 01 10 30 T- note T- note T- note T- note T- bond