USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 73

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider two bonds: both pay annual interest. Bond Y 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 X has a coupon of 7 percent per year, maturity of 10 years, yield to maturity of 4 percent per year, and a face value of $1000.
-Refer to Exhibit 13.13. Assume that your investment horizon is five years and your portfolio consists only of Bond Y and Bond X. Indicate the proportions invested in each bond, so that the portfolio is immunized.

• A) 50 percent in Bond Y and 50 percent in Bond X
• B) 76 percent in Bond Y and 24 percent in Bond X
• C) 36 percent in Bond Y and 64 percent in Bond X
• D) 100 percent in Bond X
• E) 100 percent in Bond Y

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Definitions:

Multiple Regression Model

A statistical technique that uses multiple independent variables to forecast the outcome and determine the effect of each variable on the dependent variable.

Correlation

A statistical measure that expresses the extent to which two variables change together, ranging from -1 to +1.

Null and Alternative Hypotheses

The null hypothesis is a statement of no effect or no difference, and the alternative hypothesis is what we aim to support, indicating some effect or difference.

Multiple Regression Model

A statistical methodology that incorporates several explanatory variables to deduce the future value of a dependent variable.