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You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with

You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity 3 years, and a perpetuity, each currently yielding 10%.

How much (market value) of perpetuity will you hold in your portfolio?

a. 0.875 million

b. 0.6875 million

c. 0.500 million

d. 0.125 million

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