QUESTION 61

Colie is investing her funds for the next seven years, when she will need the money for one of her goals. She is considering two bonds: a 10-year bond with a duration of 8 years and an 8-year bond with a duration of 5 years. Which bonds should she use if she wants to attempt to immunize the portfolio?

a. She should pick the 10-year bond because the duration is closest to her time horizon.

b. She should pick the 8-year bond because the maturity is closest to her time horizon.

c. She should put half in each bond.

d. She should put 2/3rds in the 10-year bond and 1/3 in the 8-year bond.