USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 11

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds: both pay annual interest. Bond C has a coupon of 6 percent per year, maturity of five years, yield to maturity of 6 percent per year, and a face value of $1000. Bond D has a coupon of 8 percent per year, maturity of 15 years, yield to maturity of 6 percent per year, and a face value of $1000.
-Refer to Exhibit 13.12. 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 percent in Bond C and 50 percent in Bond D
• B) 64 percent in Bond C and 36 percent in Bond D
• C) 36 percent in Bond C and 64 percent in Bond D
• D) 100 percent in Bond D
• E) 100 percent in Bond C

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Definitions:

Mathematical Expression

A combination of numbers, operators, and sometimes variables that represents a mathematical relationship or value.

Exponentiation

A process of multiplying a number by itself a specified number of times, indicated by the exponent.

Percentage Difference

A measure of the relative difference between two values, expressed as a percentage.

Mathematical Calculation

The process of solving a mathematical problem by using arithmetic operations and algorithms.