Question
You are an investment adviser for a client, who has $200,000 to invest for exactly 4.56 years. She states that the investment must be in
You are an investment adviser for a client, who has $200,000 to invest for exactly 4.56 years. She states that the investment must be in default-free, non-callable bonds. She will pay you a commission based on how close her realized yield is to 7.1%. After a quick survey, you believe that the following investment opportunities are available (all annual coupon and compounding):
You want to form a portfolio from bonds A and B such that this portfolios duration is exactly 4.56 years; so that you can recommend the client to invest in this portfolio.
Calculate the dollar amount that the client would need to invest in Bond A of this portfolio as per your advice.
Round your answer to 2 decimal places. For example, if your answer is 25.689, please write down 25.69.
Bond | Coupon | Maturity | Promised YTM | Current Price |
A | 7.1% | 4 | 7.1% | 1000 |
B | 7.1% | 23 | 7.1% | 1000 |
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