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Please provide the work and explanations if possible. I would like to understand the process. I want to create a bond portfolio with a duration
Please provide the work and explanations if possible. I would like to understand the process.
I want to create a bond portfolio with a duration of 5 years. I can invest in a zero coupon bond which matures in 7 years and has a yield to maturity of 5%, as well as in a second bond that has 2 years to maturity and pays a $100 annual coupon. The yield to maturity on the bond is 4%. The face value of both bonds is $1,000. If I have $90,000 to invest how should I divide that amount between the two bonds?
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