our W ork - Mozilla Firefox n.com/hm.tpx rrect and incorrect for the work you ha

Question

our W ork - Mozilla Firefox n.com/hm.tpx rrect and incorrect for the work you have completed so far. all of the work you have done so 2. value: far is correct, you may not have completed everythim correct, 10.00 points You are managing a portfolio of $2.1 milion. Your target duration is 20 years, and you can choose from two bonds: a zero-coupon bond with maturity 10 years, and a perpetuity each currently yielding 4%. a. How much of each bond w you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Zero-coupon bond Perpetuity bond 37.5096 62.5096 b. How wthese fractions change next year if target duration is now nineteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) bond bond

Explanation / Answer

In part b, the question asks how will these fraction change next year

After a year, the duration of zero coupon bond will be 9. Hence, its weight = (26 - 19) / (26 - 9) = 41.18%

Weight of perpetuity = 1 - 41.18% = 58.82%

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