Question
The I Corporation has an obligation to pay $1 million in 10 years. They want to invest money now that it will be sufficient to
The I Corporation has an obligation to pay $1 million in 10 years. They want to invest money now that it will be sufficient to meet this obligation. The purchase of a zero-coupon bond would provide a solution; but such zeros are not available in the exact required maturity now. Instead the I Corporation is planning to select from the 3 corporate bonds shown below. The prices of bonds are given as percent of par.
|
| COUPON RATE(%) | MATURITY(YRS) | PRICE | YIELD(%) |
| BOND1 | 6 | 30 | 69.04 | 9 |
| BOND2 | 11 | 10 | 113.1 | 9 |
| BOND3 | 9 | 20 | 100.00 | 9 |
Discuss how the I Corporation will choose and what is going to ultimately the bond portfolio of their choice.
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Financial Markets And Institutions
Authors: Frederic S. Mishkin, Stanley Eakins
6th International Edition
0321552113, 9780321552112
