Question

You are managing a portfolio of $1.9 million. Your target duration is 13 years, and you can choose from two bonds:

a zero-coupon bond with maturity 6 years, and a perpetuity, each currently yielding 8%.

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 changenext year if target duration is now thirteen years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  Zero-coupon bond %

Perpetuity bond

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