1. A pension fund has an average duration of its liabilities equal to 18 years. The fund is looking at 4-year maturity zero-coupon bonds and 5% yield perpetuities to immunize its interest rate risk. How much of its portfolio should it allocate to the zero-coupon bonds to immunize if there are no other assets funding the plan?
17.65%
82.35%
22.22%
21.00%
2. Doisneau 24?-year bonds have an annual coupon interest of 13 ?percent, make interest payments on a semiannual? basis, and have a ?$1,000 par value. If the bonds are trading with a? market's required yield to maturity of 17 ?percent, are these premium or discount? bonds? Explain your answer. What is the price of the? bonds?
a. If the bonds are trading with a yield to maturity of 17?%, then ? (Select the best choice? below.)
A. there is not enough information to judge the value of the bonds.
B. the bonds should be selling at par because the? bond's coupon rate is equal to the yield to maturity of similar bonds.
C. the bonds should be selling at a premium because the? bond's coupon rate is greater than the yield to maturity of similar bonds.
D. the bonds should be selling at a discount because the? bond's coupon rate is lessless than the yield to maturity of similar bonds.