Question
Hi i have the following problem a company have a obligation of 60 million in 2 years. they want to immunize the interest risk. there
Hi i have the following problem
a company have a obligation of 60 million in 2 years. they want to immunize the interest risk. there are two bonds on the market.
a 2-year annuity bond with annual payment of 100 and a price of 195.11 today.
a 3-year bullet bond with a payment of 100 and a price of 99.12 today.
question 1: show that the zero coupon rate over the next three years is y(3)=2.32%
i am then told that the zero coupon rate over the next year is y(1)=1.21%
question 2:
which y(2) means that there will be no arbitrage if a 1-year zero coupon bond could be traded at y(1)=1.21%
question 3
calculate the present value of the obligation
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