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Rami is considering investing $20,000 in two Lebanese treasury bills. The first treasury bill is a 1-year, zero-coupon bond with a face value of
Rami is considering investing $20,000 in two Lebanese treasury bills. The first treasury bill is a 1-year, zero-coupon bond with a face value of $100, which is selling at 7.12% yield. The second is a 3-year, 5% coupon bond (paid annually) with a face value of $100, which is selling at a 9.32% yield. In order to diversify the interest rate risk, Rami decided to invest equal amounts of money in each bond. (a) What are the prices of the two bonds? (b) How many shares of each bond should Rami buy?
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