Problem 11-19

You are managing a portfolio of $2.1 million. Your target duration is 20 years, and you can choose from two bonds: a zero-coupon bond with maturity 10 years, and a perpetuity, each currently yielding 4%.

a.	How much of each bond 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 nineteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Zero-coupon bond	%
Perpetuity bond	%