An insurance company must make payments to a customer of $8 million in 1 year and $5 million in 5 years. The yield curve is flat at 10% per annum. The insurance company wants to fully fund and immunize its obligation to this customer by purchasing a zero-coupon bond.

What must be the face value of the zero-coupon bond that the insurance company should invest in?

a.

$13.00 million

b.

$12.50 million

c.

$15.80 million

d.

$12.80 million

e.

None of the options.