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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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.
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