Exhibit 16-10 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 44

Multiple Choice

Exhibit 16-10
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7% coupon, matures in two years, has a yield to maturity of 8%, and a face value of $1,000. Bond B pays an annual 8% coupon, matures in three years, has a yield to maturity of 9%, and a face value of $1,000.
-Refer to Exhibit 16-10. Assume that your investment horizon is 2 years and your portfolio consists only of bonds A and B. What proportion should be invested in each bond to immunize the portfolio?

• A) Invest 72.4% in bond A and 27.6% in bond B.
• B) Invest 68.3% in bond A and 31.7% in bond B.
• C) Invest 58.5% in bond A and 41.5% in bond B.
• D) Invest 31.7% in bond A and 68.3% in bond B.
• E) Invest 27.6% in bond A and 72.4% in bond B.

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