How much should the firm invest into the 3-year zero-coupon

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A corporation just issued a 3-year, 8% coupon bond with the face value of $15,000 today. The bond is priced at par. In the market, there are three different U.S. treasury bonds available: (1) One-year zero-coupon T-bond with 3.5% yield; (2) two-year zero-coupon T-bond with 4.2% yield, and (3) three-year zero-coupon T-bond with 4.75% yield. In order to hedge against the interest rate risk on the bond using the cash flow matching method, how much should the firm invest into the 3-year zero-coupon T-bond?

A. $12,325

B. $13,035

C. $14,095

D. $15,425

E. None of the above

Reference no: EM132515705

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