**Problem Statement:**Acme company must pay liabilities of 3000 and 4500 at the end of years 1 and 2, respectively. The only investments available to the company are the following two zero-coupon bonds:**Bond Details:**| Maturity (years) | Effective annual yield | Par ||------------------|------------------------|------|| 1 | 8% | 1000 || 2 | 8% | 1500 |**Task:**Determine the cost to the company today to match its liabilities exactly.

Given: Year 1 payment = $3,000 Year 2 payment = $4,500 Rate = 8%

Acme company must pay liabilities of 3000 and 4500 at the end of years 1 and 2, respectively. The only investments available to the company are the following two zero-coupon bonds Maturity (years) Effective annual yield Par 1 8% 1000 8% 1500 Determine the cost to the company today to match its liabilities exactly.

Acme company must pay liabilities of 3000 and 4500 at the end of years 1 and 2, respectively. The only investments available to the company are the following two zero-coupon bonds Maturity (years) Effective annual yield Par 1 8% 1000 8% 1500 Determine the cost to the company today to match its liabilities exactly.

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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