You have a planning horizon of H = 6 years and wish to immunize your investment...
You have a planning horizon of H = 6 years and wish to immunize your investment for that horizon. You attempt to do so by buying a perpetual bond that pays $59 annually and has a YTM of 17% p.a. You will reinvest the coupons throughout this 6-year period and, additionally, you will sell the bond at the end of that 6-year period. Find the total cash flow you will have 6 years from now if interest rates remain unchanged throughout your planning horizon.
Homework Answers
Find the total cash flow you will have 6 years from now if interest rates remain unchanged throughout your planning horizon.
=59/17%*(1.17^6-1)+59/17%
=890.26287
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