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Suppose that Dr. Kim has an obligation to pay back $100,000 in 2.5 years. To immunise this obligation, Dr. Kim plans to invest in 3-year
Suppose that Dr. Kim has an obligation to pay back $100,000 in 2.5 years. To immunise this obligation, Dr. Kim plans to invest in 3-year x% coupon bond at a yield of 25.73% pa. Coupon rate is an annualized percentage rate and coupons are paid annually. Yield to maturity is an annualized simple interest rate compounded annually. (a) Please find coupon rate x% that will immunize Dr. Kim's obligation. (b) How much Dr.Kim should invest today in this coupon bond for immunization? (c) Using the coupon rate you computed in part (a), please find the total dollar amount of par value of the coupon bond that Dr. Kim should invest in. (In case you didn't get an answer for part (a), please assume the coupon rate is 10%. I will still give you full mark for part (c) if the rest of steps are all correct.)
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