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Problem 55.4 A $5,000 payment is owed from Abby to Ben two years from now. Abby wants to set up an investment fund to meet
Problem 55.4 A $5,000 payment is owed from Abby to Ben two years from now. Abby wants to set up an investment fund to meet this obligation, but the only investments she has available are a money market fund (currently earning 8%, but the rate changes daily), and a five-year zero-coupon bond earning 8%. Use an immunization framework to determine the amount of money Abby should invest now in each of the two investment vehicles. Assume an effective annual interest rate of 8% for present value calculations. Problem 55.4 A $5,000 payment is owed from Abby to Ben two years from now. Abby wants to set up an investment fund to meet this obligation, but the only investments she has available are a money market fund (currently earning 8%, but the rate changes daily), and a five-year zero-coupon bond earning 8%. Use an immunization framework to determine the amount of money Abby should invest now in each of the two investment vehicles. Assume an effective annual interest rate of 8% for present value calculations
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