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:

Dow Jones Industrial Average

A stock market index that measures the stock performance of 30 large companies listed on stock exchanges in the United States.

Blue-Chip Stocks

Shares in large, reputable companies known for their ability to operate profitably in good and bad times, often paying dividends to shareholders.

Divisor

A number by which another number is divided in mathematics, or a variable in an index that is used to maintain its continuity.

Securities Holdings

All the investments held by an individual or institution, including stocks, bonds, mutual funds, and other types of securities.