Reference no: EM133072790
You're the corporate treasurer and have to pay $100million on 3 years. You want to remove any risk and identified two bonds to invest in:
1. A zero coupon bond with 1 year maturity,
2. A corporate bond with 4 years to maturity, annual coupon rate of 3%.
The market interest rate is 6%.
A) What is the price of the coupon bond(in$)?
B) What is the duration of the coupon bond?
C) What is the duration of the zero-coupon bond?
D) If you want to immunize, what fraction of your assets should you invest in the coupon bond( answer should be decimal)?
E) What is the present value of your liability( in $millions)?
F) If you want to immunize, how much money should you invest in the in the coupon bond($ in millions)?
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