Company ABC has liabilities of 20,000, 50,000, and 70,000 due at the end of years 1,...

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Finance

Company ABC has liabilities of 20,000, 50,000, and 70,000 due atthe end of years 1, 2, and 3 respectively. The company would liketo exactly match these liabilities using the following assets:
A one-year zero coupon bond with a yield of 4%
A two-year zero coupon bond with a yield of 5%
A three-year coupon bond with annual coupons of 6% and a yieldof 5.5%
What is the total cost of the asset portfolio that will matchthe liabilities?
Please answer as soon as possible!!!
Thank you

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3.9 Ratings (588 Votes)

For Zero coupon bondYield to Maturity Face Value Current Price of Bond 1 Years to Maturity 1 1 For one year zero coupon bond assuming face value of 100 and we have Yield of 4 and Years to maturity 1 4 100 current price of bond 11 1 100 Current price of bond See Answer

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Company ABC has liabilities of 20,000, 50,000, and 70,000 due atthe end of years 1, 2, and 3 respectively. The company would liketo exactly match these liabilities using the following assets:A one-year zero coupon bond with a yield of 4%A two-year zero coupon bond with a yield of 5%A three-year coupon bond with annual coupons of 6% and a yieldof 5.5%What is the total cost of the asset portfolio that will matchthe liabilities?Please answer as soon as possible!!!Thank you