Question

Ms. Johnson invested $10,000 in a 10-year zero coupon bond and $20,000 in a 3-year semiannual coupon bond that has a duration of 2.5 years. Her portfolio is immunized from interest rate risk if ______.

Answer 1

Her investment horizon is 5 years

Step-by-step explanation:

If investment = $10,000

10-year zero coupon bond

$20,000 in a 3-year semiannual duration = 2.5 years.

Duration = (1/3 )*10 + (2/3)*2.5

= 5 years