10.1 2 years 340 years QUESTION 32 You plan to go to graduate school in 4 years.

Question

10.1 2 years 340 years QUESTION 32 You plan to go to graduate school in 4 years. You estimate the cost of your graduate program is to be $10,000. You are thinking of investing in a 5 year zero proportion of your portfolio should you mest in each bond to in montre this bond and a 3 year 8% coupon bond with a yield to maturity of 109, what coupon portiolio? 067% in zero coupon bond and the 33% in coupon bond 055% in zero coupon bond and the 4S% in coupon bond sow in zero coupon bond and the 50% in coupon bond 78% in zero coupon bond and the 12% in coupon bond ION 33 ble below for JNPR options, answer the following questions (33, 34, 35) Last Sale Net Change orks, Inc. NASDAQ-NM $20.51 0.26 save and submit.Click Save All Answers to save all answers.

Explanation / Answer

Construct a portfolio with duration 4 years

Duration of 5-year zero-coupon bond = 5

Duration of 3-year 8% coupon bond

D = (1+y)/y – [(1 + y) + N(c – y)] / [c{(1 + y)^N – 1} + y]

y = 10%, c = 8%, N = 3

D = 1.10/0.10 - (1.10 + (0.08 - 0.10)*3) / (0.08*(1.10^3 - 1) + 0.10) = 2.777356104

Compute duration by table

Construct portfolio: put w* on zero-coupon bond

4 = 5*w + (1 - w)* 2.777356104

4 = 5w + 2.777356104 - 2.777356104w

w = (4 - 2.777356104) / (5 -2.777356104) = 0.55

55% asset allocated on zero coupon bond and 45 on coupon bond

N CF DCF w w*N 1 8 7.272727 0.076534 0.076534 2 8 6.61157 0.069576 0.139152 3 108 81.142 0.85389 2.56167 SUM = 95.0263 1 2.777356

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.