How much of each type of bond should be purchased

Reference no: EM132060440

Question: Providence Health Care is obligated to make a payment of $300,000 in exactly three years. In order to provide for this obligation, their financial officer decides to purchase a combination of one-year zero-coupon bonds and four-year zero-coupon bonds. Each of these is sold to yield an annual effective yield of 4%. How much of each type of bond should be purchased so that the present value and duration conditions of Redington immunization are satisfied? (Let P1 and P4 denote the prices of the one-year bond and of the four-year bond, respectively.

Reference no: EM132060440

Questions Cloud

How are these transactions handled for income tax purposes : Long-term loss on the sale of business use equipment 7,000, How are these transactions handled for income tax purposes

Convert the bond at the end of second year : Prospect Corporation is a venture capital company.It was incorporated and listed on the GrowthEnterprise Market (GEM) four years ago.Since incorporation.

What is the amount of the premium on these bonds at issuance : Quatro Co. issues bonds dated January 1, 2015, with a par value of $740,000. What is the amount of the premium on these bonds at issuance

Discuss the importance of internal financial reports : Provide your thoughts on the importance of internal financial reports particularly the importance of budgets in managing the resources and obligations.

How much of each type of bond should be purchased : Providence Health Care is obligated to make a payment of $300,000 in exactly three years. In order to provide for this obligation, their financial officer.

Pros and cons of investing directly in individual stocks : What are the pros and cons of investing directly in individual stocks or bonds versus investing indirectly through a mutual fund?

Calculate irr for each option : Proust Manufacturing Co. produces personal fitness machines. The once successful line is no longer selling well, so the company is considering production.

What reforms should be considered for the future : What reforms should be considered for the future? Who is advocating for those reforms and which segment of the voting population supports those reforms?

What happens to the minimum detectable effect : What happens to the MDE (the Minimum detectable effect) if we increase the variance of the error term? What does that say about the value of including control.

User Account

All Pages