1. You invest $7,500 (today's market value, not par) in 3 year zero coupon bonds. You invest $2,500 (today's market value, not par) in 5 year zero coupon bonds. What is the duration of your portfolio?
2. You purchase $5,000,000 worth of 5 year STRIPS and another $5,000,000 worth of 7 year STRIPS. (The $5,000,000 refers to the current market value, not par value). The yield to maturity on each is 6%. What os the duration of your portfolio?
3. What will happen to your portfolio if you add some randomly selected stocks to it?
a) The diversifiable risk will remain the same but the market risk will rise.
b) The diversifiable risk to your portfolio will probably decline while the expected market risk will not change.
c) The total portfolio risk should decline along with the expected rate of return, but the market risk will remain unchanged.
d) The diversifiable risk and the market risk will both decline.