A company must make a payment of $7000 in 7 years. The only investments available are 2-year zero coupon bonds and 8-year zero coupon bonds. These bonds could be purchased in any quantity and the yield rate is 5% effective. What face amount of each bond should the company buy in order to satisfy the first two conditions of Redington immunization. Also check if the 3rd condition is satisfied.
2-year Bond, 8-year Bond, 3rd condition satisfied
a. 914.11 6,125.00 Yes
b. 876.21 5,219.75 Yes
c. 914.11 6,125.00 No
d. 926.75 6,876.21 No
e. 876.29 5,219.75 No
Answers: 3
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