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Grandma want to invest her money for 5 years. She is very risk-averse therefore she wants to have a certain return of 10% no matter
Grandma want to invest her money for 5 years. She is very risk-averse therefore she wants to have a certain return of 10% no matter how interest rate would change. There are 3 bonds A, B and C available for her to invest in. All of them are annual coupon bonds that yield 10% and have the Macaulay Duration of 4, 3.5 and 8. What would be the portfolio weight for grandma? Assuming she wants to allocate equal weight to A & B.
Bond A | Wa | 0.352941 |
Da | 4 | |
Bond b | Wb | 0.352941 |
Db | 3.5 | |
Bond c | Wc | 0.294118 |
Dc | 8 | |
goal | 5 | |
goal | 5 |
A. 0.3529, 0.3529, 0.2942. |
B. 0.4064, 0.4064, 0.1872. |
C. 0.4156, 0.4156, 0.1688. |
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