How should the company portfolio of investment

Reference no: EM132210748

Question - A company has to meet obligations of $8 million in 1 year and $6 million in four years from now and would like to invest in bonds today to allow it to cover the payments. The yield curve is flat at 8 per cent. The management of the company is concerned about the reinvestment risk as interest rates can change.

Required:

a) How should the company's portfolio of investment be structured to minimise interest rate risk?

b) If the company wants to immunize its obligations with a portfolio of zero-coupon bonds, what maturity bonds must it purchase?

Reference no: EM132210748

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