How many of each bond should she purchase

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Reference no: EM132064987

The following bonds are available to you.


A

B

C

D

Maturity Date

2/15/25

2/15/35

2/15/19

2/15/21

CouponRate (ann)

2%

8%

4%

0.00%

YTM

2.900%

3.500%

1.300%

1.500%

All bonds have a par value of $100, all rates are annual, but the coupon bonds aresemi annual.

1. Your client has $100,000 and wishes to construct a portfolio with a Duration of 5 years. How many of each bond should she purchase? It is important that she is invested as close to $100,000 as possible.

2. Another client is interested in the sameset ofbonds, butwishes to create a portfolio with a duration of 15 years. This client also has $100,000 to invest. You'll need to recommend a more involved strategy for this client, but your solution will use the same method as for the first client. What would you recommend to this client? What key assumptions do you need to make?

Reference no: EM132064987

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