Problem 11-19

You are managing a portfolio of $1.0 million. Your target duration is 24 years, and you can choose from two bonds: a zero-coupon bond with maturity five years, and a perpetuity, each currently yielding 2%. a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Zero-coupon bond		%
Perpetuity bond		%

b. How will these fractions change next year if target duration is now twenty three years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Zero-coupon bond		%
Perpetuity bond		%