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koban [17]
3 years ago
14

An insurance company accepts an obligation to pay 10,000 at the end of each year for 2 years. The insurance company purchases a

combination of the following two bonds at a total cost of X in order to exactly match its obligation: 1-year 4% annual coupon bond with a yield rate of 5% 2-year 6% annual coupon bond with a yield rate of 5% Calculate X.
Business
1 answer:
Olin [163]3 years ago
4 0

Answer:

$18,594.10

Explanation:

Insurance company has to pay $10,000 for two year with rate of 5% since market rate remain same in both the bond.

X = PV (PMT, N, I/Y)

X = PV(10000, 2, 5)

X = 18594.1043

X = $18,594.10

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