Question
A company must make payments of $10 annually in the form of a 10-year annuity-immediate. It plans to buy two zero coupon bonds to fund
A company must make payments of $10 annually in the form of a 10-year annuity-immediate. It plans to buy two zero coupon bonds to fund these payments. The first bond matures in 2 years and the second bond matures in 9 years, and both are purchased to yield 10% effectively. What face amount of each bond should the company buy in order to be immunized from small changes in the interest rate (Redington immunization)?
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Principles of managerial finance
Authors: Lawrence J Gitman, Chad J Zutter
12th edition
9780321524133, 132479540, 321524136, 978-0132479547
