Question 2a: Bonds & Shares

As a securities trader for Monash Investments, you are required to build a $10 million portfolio of bonds, approximately consisting of 40% zero-coupon and 60% coupon BHP bonds. You require a 4.5% p.a. yield-to-maturity on BHP zero-coupons that have a 4 year maturity and face value of $100,000. You require a 7.5% p.a. yield-to-maturity on BHP coupon bonds that have a 6 year maturity, a face value of $1,000,000 and are paying a coupon rate of 6.5% p.a., semi-annually.

To construct the portfolio, you will purchase

a. 47

b. 47.7

c. 48

d. 49

zero-coupon bonds,

a. 6.2

b. 7

c. 5

d. 6

coupon bonds with

a. 17,313.83

b. 117,313.83

c. 0

d. 344,442.50