ESSEN.OF INVESTMENTS(LOOSE)W/CONNECT<BI>
ESSEN.OF INVESTMENTS(LOOSE)W/CONNECT<BI>
11th Edition
ISBN: 9781264800919
Author: Bodie
Publisher: MCG
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Chapter 11, Problem 16PS
Summary Introduction

(A)

Adequate information:

The coupon rate for the 5 year maturity bond is 12% and the duration is 4 years. Since, the duration pertaining to 20 year maturity bond has been 8 years and the coupon rate is 6%.

To calculate:

The proportion of each bond that must be held to immunize and fully fund the obligation

Introduction:

Bond refers to the debt instrument pertaining to which loan is provided by the investor to the governmental or corporate entity for a definite time period at a fixed or variable rate of interest.

Summary Introduction

(B)

To calculate:

The par value of the 20 year coupon bond

Introduction:

Par value refers to the bond's face value. It is important for a fixed income instrument or bond because it helps in identifying the value at the time of maturity and coupon payments in dollar value.

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