PPT Slide

Suppose only the following bonds are available for its choice.

• Present value of obligation at 9% yield is $414,643.

• Since Bonds 2 and 3 have durations shorter than 10 years, it is not

possible to attain a portfolio with duration 10 years using these

two bonds.

Suppose we use Bond 1 and Bond 2 of amounts V1 & V2,

V1 + V2 = PV

P1V1 + D2V2 = 10 ? PV

giving V1 = $292,788.64, V2 = $121,854.78.