Zero-coupon bond and perpetuity bond

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You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity of 5 years, and a perpetuity, each currently yielding 7.8%.

a. What weight of each bond will you hold to immunize your portfolio? (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

  Zero-coupon bond %

  Perpetuity bond %  

b. How will these weights change next year if target duration is now 9 years? (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

  Zero-coupon bond %  

  Perpetuity bond %

Reference no: EM131562123

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