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An insurance company must make payments to a customer of $8 million in 1 year and $4 million in 4 years. The yield curve is flat at 9%. 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? (Do not "round intermediate calculations. Round your answer to 4 decimal places.) Maturity of zero coupon bond years What must be the face value and market value of that zero-coupon bond? (Do not round intermediate calculations. Enter your answers in millions b. rounded to 2 decimal places. Omit the "S" sign in your response.) Face value Market values

An insurance company must make payments to a customer of $8 million in 1 year and $4 million in 4 years. The yield curve is flat at 9%. 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? (Do not "round intermediate calculations. Round your answer to 4 decimal places.) Maturity of zero coupon bond years What must be the face value and market value of that zero-coupon bond? (Do not round intermediate calculations. Enter your answers in millions b. rounded to 2 decimal places. Omit the "S" sign in your response.) Face value Market values

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 11P
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An insurance company must make payments to a customer of $8 million in 1 year and $4 million in 4 years. The yield curve is flat at 9%. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (Do not round intermediate calculations. Round your answer to 4 decimal places.) a. Maturity of zero coupon bond years What must be the face value and market value of that zero-coupon bond? (Do not round intermediate calculations. Enter your answers in millions b. rounded to 2 decimal places. Omit the "$" sign in your response.) Face valueS Market values
Transcribed Image Text:An insurance company must make payments to a customer of $8 million in 1 year and $4 million in 4 years. The yield curve is flat at 9%. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (Do not round intermediate calculations. Round your answer to 4 decimal places.) a. Maturity of zero coupon bond years What must be the face value and market value of that zero-coupon bond? (Do not round intermediate calculations. Enter your answers in millions b. rounded to 2 decimal places. Omit the "$" sign in your response.) Face valueS Market values
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