Suppose Huron Corp. must make a $50 million pension payment every year for the next 5 years. Huron decides to immunize the payment with investments in 2 year and 5 year zeros. The interest rate is 4%. If each bond in the market has a face value of S10,000, how many 5 year bonds will they purchase?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 9P
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Suppose Huron Corp. must make a $50 million pension payment every year for the next 5 years. Huron decides to immunize the payment with investments in 2 year and 5 year zeros. The interest rate is 4%.

If each bond in the market has a face value of S10,000, how many 5 year bonds will they purchase?

A) Approximately 8900

B) Approximately 1200

C) Approximately 8395

D) Approximately 6727

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