Question
A corporation has liabilities that require it to pay 1,000 in.one year (at t=1), 2,000 one year later (at t-2), and 3,000 one year
A corporation has liabilities that require it to pay 1,000 in.one year (at t=1), 2,000 one year later (at t-2), and 3,000 one year after that (at t=3). The corporation will purchase high-quality bonds to fund these liabilities. The following 3 bonds are available: 1-year zero-coupon bond with a 4% yield to maturity 2-year zero-coupon bond with a 6% yield to maturity 3-year bond with 7% annual coupons and an 8% yield to maturity (Assume that each bond is available for purchase in any face amount. All rates are annual effective rates.) The corporation purchases a combination of these bonds that will exactly fund its 3 liability payments. What is the total cost of the bonds that are purchased? A) 5,101 B) 5,110 C) 5,120 D) 5,123 E) 5,128
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Quantitative Analysis for Management
Authors: Barry Render, Ralph M. Stair, Michael E. Hanna, Trevor S. Ha
12th edition
133507335, 978-0133507331
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