An investor's liabilities are given by two lump payments of £3,000 at the end of the first and second years. Two Zero Coupon Bonds (ZCB) each with face value £100 are available on the market; one has maturity in 6 months and the other one in 3 years. The annual effective rate is 5%. Construct a portfolio of bonds that satisfies the first two conditions of Redington's immunization theory.

An investor's liabilities are given by two lump payments of £3,000 at the end of the first and second years. Two Zero Coupon Bonds (ZCB) each with face value £100 are available on the market; one has maturity in 6 months and the other one in 3 years. The annual effective rate is 5%. Construct a portfolio of bonds that satisfies the first two conditions of Redington's immunization theory.

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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