Question
On Jan 1, 2009, we set up a target-date-immunized portfolio of bonds to fund an obligation due on Jan 1, 2018. The portfolio includes coupon
On Jan 1, 2009, we set up a target-date-immunized portfolio of bonds to fund an obligation due on Jan 1, 2018. The portfolio includes coupon bonds that have 10-year maturities. It also includes bonds that have 6% coupon rates. It is now Jan 1, 2010. The yield curve is flat; it hasnt changed since we set up the portfolio. To remain immunized we should:
I. Do nothing
II. Reallocate our investment in 10-year maturities from low-coupon to high-coupon bonds.
III. Reallocate our investment in 10-year maturities from high-coupon to low-coupon bonds.
IV. Reallocate our investment in 6% coupon bonds from short-maturity bonds to long-maturity bonds.
V. Reallocate our investment in 6% coupon bonds from long-maturity bonds to short-maturity bonds.
A.
III and/or V
B.
III and/or IV
C.
II and/or IV
D.
II and/or V
E.
I
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