A corporation has an obligation to pay $50M in 12 years. The current interest rate is 8%
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Question:
- A corporation has an obligation to pay $50M in 12 years. The current interest rate is 8% at all maturities.
- What is the current value that the fund must have now to cover the obligation in 12 years?
- Unfortunately, they cannot find 12-year bonds and must instead purchase 5-year and 20-year zero-coupon ($1000) bonds. What are the prices of each of these bonds today?
- How many 5- and 20- year ZCB's should the company buy to be immunized against interest rate changes?
- If the interest rate changes to 6% in 5 years permanently, what will the value of the immunized bond portfolio be in 12 years?
Related Book For
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118644942
6th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine
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