Esther needs to pay rent in 5 payments of $2,000. Payments are made annually with the first payment beginning 1/1/2014. She plans to purchase two zero-coupon bonds to cover her costs. The first bond expires in 1/1/2015 while the second expires in 1/1/2019. The annual effective interest rate is 8%. Based on Redington immunization, caleulate the total face amount for the bonds so that Esther is immunined from small changes in interest rates. 10,025 10,030 10,035 10,040

Esther needs to pay rent in 5 payments of $2,000. Payments are made annually with the first payment beginning 1/1/2014. She plans to purchase two zero-coupon bonds to cover her costs. The first bond expires in 1/1/2015 while the second expires in 1/1/2019. The annual effective interest rate is 8%. Based on Redington immunization, caleulate the total face amount for the bonds so that Esther is immunined from small changes in interest rates. 10,025 10,030 10,035 10,040

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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Concept explainers

Amortized Loans

The term "amortization" refers to spreading the value of a loan or a debt over a series of regular payments or installments comprising of both the principal and interest amount. It generally involves the process where in the value of a loan or an intangible asset is written down over its maturity period.

Question

Esther needs to pay rent in 5 payments of $2,000. Payments are made annually with the first payment beginning 1/1/2014. She plans to
purchase two zero-coupon bonds to cover her costs. The first bond expires in 1/1/2015 while the second expires in 1/1/2019. The annual
effective interest rate is 8%.
Based on Redington immunization, caleulate the total face amount for the bonds so that Esther is immunized from small changes in
interest rates.
10,025
10,030
10,035
10,040
10,045

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