A scholarship foundation is committed to make a payment of 20,000 exactly two years from today. It plans to use zero-coupon bonds to fully immunize the liability based on a flat yield curve and an annual effective yield rate of 5.5%. One of the bonds will have a one-year maturity and the other will have a three-year maturity. Calculate the face value of the one-year zero coupon bond.

A scholarship foundation is committed to make a payment of 20,000 exactly two years from today. It plans to use zero-coupon bonds to fully immunize the liability based on a flat yield curve and an annual effective yield rate of 5.5%. One of the bonds will have a one-year maturity and the other will have a three-year maturity. Calculate the face value of the one-year zero coupon bond.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

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