You are managing a portfolio of $2.1 million. Your target duration is 20 years, and...
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You are managing a portfolio of $2.1 million. 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 will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| Zero-coupon bond | % |
| Perpetuity bond | % |
| b. | How will these fractions change next year if target duration is now nineteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) |
| Zero-coupon bond | % |
| Perpetuity bond | % |
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