An insurance company must make payments to a customer of $1 million in one year and $400,000 in four years. The yield curve is flat at 10%. Use annual compounding. If the company wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what must be the face value of the zero-coupon bond?

a.

$3.81 million

b.

$1.39 million

c.

$8.37 million

d.

$1.83 million

Clear my choice