Question
Asked Dec 3, 2019
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Yield to maturity (Expected/Current) 9%    
Number of Years to Future Liability 9.00    
Future Liability $7,500    
       
       
  Bond 1 Bond 2 Bond 3
Coupon rate 6.00% 7.000% 8.00%
Maturity 12 18 24
Face value 1,000 1,000 1,000

Compute the amount to be invested to meet the future liability noted in the data. This future liability is due in 9 years. Please show work using excel

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Expert Answer

Step 1

We need to use the concept of time value of money to solve the question. According to the concept of time value of money, the worth of money at the present time is more compared to the identical sum at some time in future, that is, we can earn interest on the money we have at the present time. 

Step 2

Given that the future liability is $7,500
Number of years or time period is 9 years
Interest rate (refers to the yield to maturity) is 9% , and we will take the annual payments as zero to calculate the present value in this case.

Step 3

We can determine the present valu...

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