Question: In 10 years, a $200,000,000 liability is due.Only one bond is available to you:ABC company, 10 years semiannual payments, 4% YTM, 8% coupon, 3% reinvestment

In 10 years, a $200,000,000 liability is due.Only one bond is available to you:ABC company, 10 years semiannual payments, 4% YTM, 8% coupon, 3% reinvestment rate, BBB credit rating.

a.Provide the # of bonds needed to fund the liability and the cost.

b.If the reinvestment rate falls from 3% to 2%, what is the projected deficit?

c.To prevent a deficit, explain how immunization can work, how it can help you and what conditions are required.

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