Question
A company has liabilities of 573 due at the end of year 2 and 701 due at the end of year 5. A portfolio comprises
A company has liabilities of 573 due at the end of year 2 and 701 due at the end of year 5. A portfolio comprises two zero-coupon bonds, Bond A and Bond B. Determine which portfolio produces a Redington immunization of the liabilities using an annual effective interest rate of 7.0%. (A) Bond A: 1-year, current price 500; Bond B: 6-years, current price 500 (B) Bond A: 1-year, current price 572; Bond B: 6-years, current price 428 (C) Bond A: 3-years, current price 182; Bond B: 4-years, current price 1092 (D) Bond A: 3-years, current price 637; Bond B: 4-years, current price 637 (E) Bond A: 3.5 years, current price 1000; Bond B: Not used
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