The insurance company wants to use The Bond as part of a portfolio designed to immunize an obligation that it foresees will come due in 15 years

• To create a bond portfolio with an overall duration of 15 years, the insurance company decides to buy zero coupon bonds with a maturity of 20 years (and with a YTM of 7%) to combine with The Bond. To bring the combination of The Bond plus The Zero to a combined portfolio duration of 15 years, what would be the correct mix of The Bond relative to the 20-year Zero?
  • A) percentage amount of The Bond in the portfolio
  • B) percentage amount of The Zero in the portfolio
  • C) Can you suggest a simpler investment that would give the insurance company a bond investment with a 15-year duration?