(A)
Adequate information:
The coupon rate for the 5 year maturity bond is 12% and the duration is 4 years. Since, the duration pertaining to 20 year maturity bond has been 8 years and the coupon rate is 6%.
To calculate:
The proportion of each bond that must be held to immunize and fully fund the obligation
Introduction:
Bond refers to the debt instrument pertaining to which loan is provided by the investor to the governmental or corporate entity for a definite time period at a fixed or variable rate of interest.
(B)
To calculate:
The par value of the 20 year coupon bond
Introduction:
Par value refers to the bond's face value. It is important for a fixed income instrument or bond because it helps in identifying the value at the time of maturity and coupon payments in dollar value.
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Chapter 11 Solutions
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