PLEASE USE ABSOLUTE MATCHING (DEDICATION) FOR FM

B 1 ject: Asset/Liability matching Bond Cashflow (Each bond has 1000 par value) Nm7 2 6 10 Bond Term (years) Coupon Rate (annual) 1 0.01 0.02 0.03 4 0.04 0.05 0.06 0.07 0.08 0.09 0.1 Number of 1000 par bonds 7 Liability Outflow Total Bond (Asset) Inflow Time 10 11 12 HNM to 0009 13 14 15 16 17 18 19 Price of One Bond Total Cost 20 $0 $0 $0 SO $0 $0 21 22 23 Grand Total A company must make yearly payments starting at $500,000 and increasing by 7% every year for 10 years. Payments are due at the end of each year. They can invest in a portfolio of coupon-paying bonds that vary in term from 1 to 10 years (a total of 10 unique bonds). Each bond has a redemption of 1000 and a coupon rate equal to the term of the bond (i.e. the 10-year bond has a coupon rate of 10%, the 8- year bond has a coupon rate of 8%). They decide to do an absolute matching strategy to back the liability. At a yield rate of 4% how much would the company need to have available to purchase bonds for this absolute matching strategy? B 1 ject: Asset/Liability matching Bond Cashflow (Each bond has 1000 par value) Nm7 2 6 10 Bond Term (years) Coupon Rate (annual) 1 0.01 0.02 0.03 4 0.04 0.05 0.06 0.07 0.08 0.09 0.1 Number of 1000 par bonds 7 Liability Outflow Total Bond (Asset) Inflow Time 10 11 12 HNM to 0009 13 14 15 16 17 18 19 Price of One Bond Total Cost 20 $0 $0 $0 SO $0 $0 21 22 23 Grand Total A company must make yearly payments starting at $500,000 and increasing by 7% every year for 10 years. Payments are due at the end of each year. They can invest in a portfolio of coupon-paying bonds that vary in term from 1 to 10 years (a total of 10 unique bonds). Each bond has a redemption of 1000 and a coupon rate equal to the term of the bond (i.e. the 10-year bond has a coupon rate of 10%, the 8- year bond has a coupon rate of 8%). They decide to do an absolute matching strategy to back the liability. At a yield rate of 4% how much would the company need to have available to purchase bonds for this absolute matching strategy