You have an obligation with a Present Value of $333000.00 and a duration of 6.80...
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Finance
You have an obligation with a Present Value of $333000.00 and a duration of 6.80 years.
There are 2-zero coupon bonds that you might use to duration-immunize a portfolio. A short-term bond with a maturity of 3 years and a long-term bond with a maturity of 12 years.
The prevailing interest rate on all bonds and your obligation is constant at 7.40%.
You will buy both the short-term bond and the long-term bond to duration immunize your portfolio.
What amount of money should you spend on the long-term bond to duration immunize your obligation (ie: what present value of the long-term bond will you purchase).
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