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An investor's liabilities are given by two lump payments of £3,000 at the end of the first and second years. Two Zero Coupon Bonds (ZCB) each with face value £100 are available on the market; one has maturity in 6 months and the other one in 3 years. The annual effective rate is 5%. Construct a portfolio of bonds that satisfies the first two conditions of Redington's immunization theory.

An investor's liabilities are given by two lump payments of £3,000 at the end of the first and second years. Two Zero Coupon Bonds (ZCB) each with face value £100 are available on the market; one has maturity in 6 months and the other one in 3 years. The annual effective rate is 5%. Construct a portfolio of bonds that satisfies the first two conditions of Redington's immunization theory.

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 8P
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An investor's liabilities are given by two lump payments of £3,000 at the end of the first and second years. Two Zero Coupon Bonds (ZCB) each with face value £100 are available on the market; one has maturity in 6 months and the other one in 3 years. The annual effective rate is 5%. Construct a portfolio of bonds that satisfies the first two conditions of Redington's immunization theory.
Transcribed Image Text:An investor's liabilities are given by two lump payments of £3,000 at the end of the first and second years. Two Zero Coupon Bonds (ZCB) each with face value £100 are available on the market; one has maturity in 6 months and the other one in 3 years. The annual effective rate is 5%. Construct a portfolio of bonds that satisfies the first two conditions of Redington's immunization theory.
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