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Providence Health Care is obligated to make a payment of $300,000 in exactly three years. In order to provide for this obligation, their financial officer
Providence Health Care is obligated to make a payment of $300,000 in exactly three years. In order to provide for this obligation, their financial officer decides to purchase a combination of one-year zero-coupon bonds and four-year zero-coupon bonds. Each of these is sold to yield an annual effective yield of 4%. How much of each type of bond should be purchased so that the present value and duration conditions of Redington immunization are satisfied? Is the convexity condition also satisfied at i=4%?
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