USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You are creating a portfolio that consists of the following two bonds. Bond A pays an annual 7 percent coupon, matures in two years, has a yield to maturity of 8 percent, and a face value of $1,000. Bond B pays an annual 8 percent coupon, matures in three years, has a yield to maturity of 9 percent, and a face value of $1,000.
-Refer to Exhibit 13.14. Assume that your investment horizon is two years and your portfolio consists only of bonds A and B. What proportion should be invested in each bond to immunize the portfolio?

A) Invest 72.4 percent in bond A and 27.6 percent in bond B.
B) Invest 68.3 percent in bond A and 31.7 percent in bond B.
C) Invest 58.5 percent in bond A and 41.5 percent in bond B.
D) Invest 31.7 percent in bond A and 68.3 percent in bond B.
E) Invest 27.6 percent in bond A and 72.4 percent in bond B.