Coupon rate and the yield to maturity

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Assume your company has a liability with 11.5 years of Macaulay duration.

a) How would you immunize the liability using 5-year zero coupon bonds and perpetuities paying annual coupons, each currently yielding 3%?

b) If Ms. Kim suggests that an appropriate investment to immunize your liability (11.5 years of Macaulay duration) would be 13-year 2.13% coupon bonds at a yield to maturity of 2% pa. Coupon rate and the yield to maturity are expressed as an annualized percentage rate compounded annually. Coupons are paid annually. Do you agree or disagree with Ms. Kim? Why?

Reference no: EM132742392

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