An investment company has a time horizon of 3.7 years
It's portfolio is invested in 5% 4-year annual payment coupon bonds
The portfolio has a par value of $2M and current yields are 5.5%

 

a.Is the portfolio immunized when the bonds were purchased?   

Full credit requires calculations to support your answer

 

b.  Would the portfolio be immunized in year 2?

 

c.  If the firm wanted rebalance the portfolio in year 2 using a 1-year 6% zero coupon bond, what proportion of the original portfolio should it be?

Answer rating: 100% (QA)

a No the portfolio is not immunized when the bonds were purchased This can be determined by calculating the duration of the portfolio The duration of ... View the full answer