
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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A firm has liabilities of $98 in one year, $100 in two years, and $107 in three years. The firm exactly matches its liabilities by purchasing the following zero or annual coupon bonds redeemable at par:
Bond Maturity Par Value Coupon Rate Effective Yield
A 1 year 100 5% 3%
B 2 years 100 0% 4%
C 3 years 100 4% 5%
Find the number of units of Bond A that must be purchased to match the liabilities exactly.
(A) 0.894
(B) 0.897
(C) 0.913
(D) 0.933
(E) 0.959
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