An insurance firm considers to invest in two zero-coupon bonds (A and B) in order to cover for a selection of its future liabilities. These zero-coupon bonds will be redeemed in 6 years' and in 20 years' time, respectively. The given selection of its liabilities consist of £10 million due in 8 years' time and £6 million due in 15 years' time. Find the value of bond B at a rate of interest of 8% per annum effective such that the first two conditions for Redington's theory of immunisation are satisfied
An insurance firm considers to invest in two zero-coupon bonds (A and B) in order to cover for a selection of its future liabilities. These zero-coupon bonds will be redeemed in 6 years' and in 20 years' time, respectively. The given selection of its liabilities consist of £10 million due in 8 years' time and £6 million due in 15 years' time. Find the value of bond B at a rate of interest of 8% per annum effective such that the first two conditions for Redington's theory of immunisation are satisfied
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 4P
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An insurance firm considers to invest in two zero-coupon bonds (A and
B) in order to cover for a selection of its future liabilities. These zero-coupon bonds will be redeemed in 6 years' and in 20 years' time, respectively.
The given selection of its liabilities consist of £10 million due in 8 years' time and £6 million due in 15 years' time.
Find the value of bond B at a rate of interest of 8% per annum effective such that the first two conditions for Redington's theory of immunisation are satisfied
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