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You are immunizing a $19.5 million cash flow that occurs five years from today. You will do this with a two- year zero-coupon bond and
You are immunizing a $19.5 million cash flow that occurs five years from today. You will do this with a two- year zero-coupon bond and a perpetuity with an annual cash flow of $25,000 per contract. The interest rate is 9.0%. 7 pts a. What should be the value today of your immunization portfolio? b. What will be the weights of the two fixed-income assets in the immunization portfolio? c. How many zero-coupon bonds will be in the portfolio? d. How many perpetuity contracts will be in the portfolio?
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