Question: A pension fund faces two payments coming due in two consecutive years. One payment is due one year from now, and the other two years

A pension fund faces two payments coming due in two consecutive years. One payment is due one year from now, and the other two years from now, each of $1000. The current yield curve is flat at 7%. The CFO would like to immunize the liability by buying a two-year zero-coupon bond with matching duration. If it can be done, show how. If not, suggest another zero coupon bond for which durations will be matched.

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