nce company is thinking about purchasing bonds A and B with zero coupons to cover some of its future liabilities. The redemption periods for these zero-coupon bonds are seven and twenty years, respectively. £11 million is due in 11 years, and £14 million is due in 16 years, according to the list of its liabilities. Determine bond B's value at an effective 5% annual interest rate so that Redington's theory of immunization's first two requirements are m
nce company is thinking about purchasing bonds A and B with zero coupons to cover some of its future liabilities. The redemption periods for these zero-coupon bonds are seven and twenty years, respectively. £11 million is due in 11 years, and £14 million is due in 16 years, according to the list of its liabilities. Determine bond B's value at an effective 5% annual interest rate so that Redington's theory of immunization's first two requirements are m
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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An insurance company is thinking about purchasing bonds A and B with zero coupons to cover some of its future liabilities. The redemption periods for these zero-coupon bonds are seven and twenty years, respectively.
£11 million is due in 11 years, and £14 million is due in 16 years, according to the list of its liabilities.
Determine bond B's value at an effective 5% annual interest rate so that Redington's theory of immunization's first two requirements are met. (correct answer=6.419) (using formulas, no tables)
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