An insurance company must make payments to a customer of $20 million in 1 year and $8 million in 5 years. The yield curve is flat at 10%. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (in years, use four decimal places) What must be the face value and market value of that zero-coupon bond? (in millions, use two decimal places)

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Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.