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Suppose interest is compounded continuously at a rate of 2%. A company has a liability of 100, 000 of 4-year zero-coupon bonds. It wants to
Suppose interest is compounded continuously at a rate of 2%. A company has a liability of 100, 000 of 4-year zero-coupon bonds. It wants to Reddington immunize these liabilities with the purchase of P 3-year zero-coupon bonds and Q 5-year zero-coupon bonds, where P and Q are to be determined. (a) Derive the two equations P and Q must satisfy. (b) Solve the equations for P and Q. State P and Q to the nearest pound
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