To Create a Portfolio with a Duration of 4 Years

question 10

Multiple Choice

To create a portfolio with a duration of 4 years using a 5-year zero-coupon bond and a 3-year 8% annual coupon bond with a yield to maturity of 10%, one would have to invest ________ of the portfolio value in the zero-coupon bond.

• A) 50%
• B) 55%
• C) 60%
• D) 75%

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Definitions:

Hot Spot

A volcanic region thought to be fed by underlying mantle that is anomalously hot compared with the surrounding mantle, often resulting in volcanic islands.

Mantle Material

The rock and substances that make up the mantle, a thick layer between the Earth's crust and outer core.

Rising Plume

A column of hot, buoyant material within the mantle that rises due to convection, potentially leading to volcanic activity at the surface.

Subduction Zone

A region of the Earth's crust where one tectonic plate moves under another, often creating a trench and volcanic activity.