Question
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 5 years maturity, and a perpetuity, each currently yielding 5%.
a. (Immunization) How much of each bond will you hold in your portfolio (in percentage)?
b. (Rebalance) How will these fractions change next year if target duration is now 9 years?
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Investment Analysis And Portfolio Management
Authors: Frank K. Reilly, Keith C. Brown
6th Edition
003025809X, 978-3540014386
