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You are managing a portfolio of $1 million. Your target duration is 3 years, and you can choose from two bonds: a zero-coupon bond with time to maturity of 5 years, and a bond with an annual coupon rate of 8% and time to maturity of 2 years, both with yield to maturity of 5%. Assume both bonds have a face value of $1000. a. How much of each bond will you hold in your portfolio? b. How will these fractions change next year if target duration is now 2 years and the interest rates do not change?

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Financial Management, Finance

Category:- Financial Management
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