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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 5 years and a perpetuity, each currently yielding 5%

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 5 years, and a perpetuity, each currently yielding 5%.

  1. How much of each bond will you hold in your portfolio?

  2. How will these fractions change next year if target duration is now nine years?

Jun 16 2020 View more View Less

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