How does the interest rate differ from the yield

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Reference no: EM131905432

1. Explain how the price of bonds is determined and how does the interest rate differ from the yield. Pick a 5 or 10 year bond and discuss the actual numbers.

2. Suppose liabilities of $1,000 are due to be paid at the end of years 2, 3, and 7. Asset cashflows consist A1 in 1 year and A6 in 6 years. The yield for all payments is 5%. You are going to try and immunize the liability by meeting the conditions for immunization.

1) Find A1 and A6 .

2) Verify that the conditions for immunization are met.

Reference no: EM131905432

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