Exhibit 19.8 Use the Information Below for the Following Problem(S)

question 42

Multiple Choice

Exhibit 19.8
Use the Information Below for the Following Problem(S)
Consider two bonds, both pay annual interest. Bond C has a coupon of 6% per year, maturity of 5 years, yield to maturity of 6% per year, and a face value of $1000. Bond D has a coupon of 8% per year, maturity of 15 years, yield to maturity of 6% per year, and a face value of $1000.
-Refer to Exhibit 19.8.Assume that your investment horizon is 6 years and your portfolio consists only of Bond C and Bond D.Indicate the proportions invested in each bond,so that the portfolio is immunized.

• A) 50% in Bond C and 50% in Bond D
• B) 64% in Bond C and 36% in Bond D
• C) 36% in Bond C and 64% in Bond D
• D) 100% in Bond D
• E) None of the above

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Definitions:

Cost Of Goods Sold

The immediate expenses linked to the manufacturing of goods a company sells, encompassing costs for materials and labor.

Current Assets

Short-term assets that a company owns, which are expected to be converted into cash within one year, such as inventory, cash, and accounts receivable.

Average Collection Period

A financial metric that measures the average number of days it takes a company to collect payments from its credit sales.

Fixed Assets

Long-term tangible assets held for business use and not expected to be converted to cash in the upcoming fiscal year, such as machinery, buildings, and land.