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To create a bond portfolio with an overall duration of 15 years, the insurance company decides to buy zero coupon bonds with a maturity of 20 years (and with a YTM of 4%) to combine with The Bond . To bring the combination of The Bond plus The Zero to a combined portfolio duration of 15 years, what would be the correct mix of The Bond relative to The 20-year Zero?

A) percentage amount of The Bond in the portfolio

B) percentage amount of The Zero in the portfolio Another year passes. Interest rates are unchanged. Summary: the bond has 16 years to maturity, a coupon of $50, a par value of $1000 and is trading with at YTM of 4%. The zero it was paired with now has 19 years left. And the obligation they were meant to fund is now 14 years in the future.

Recalculate the Macaulay duration of the bond and recalculate what percentage of The Bond to The Zero would need to hold to immunize the obligation now 14 years in the future.

A) percentage amount of The Bond in the portfolio

B) percentage amount of The Zero in the portfolio

C) In one sentence, how would you need to rebalance the portfolio?

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92835380

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