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Firm XYZ is required to make a $5 million payment in 1 year, and a $4...

Firm XYZ is required to make a $5 million payment in 1 year, and a $4 million payment in 3 years. The firm wants invest in a portfolio of 1-year and 4-year zero-coupon bonds to fund those future payments. How much of each bond must the asset portfolio contain for the firm to still be able to fund the obligation after a parallel shift in the yield curve? Assume a flat yield curve and an annual interest rate of 10%.

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Answer #1

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ke Microsoft Excel Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text aCopy B l u. ,_a. ars-函Merge & Center, $, % , 弼,8 C Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard Alignment Number Cells Edting ECI ЕЕ TIME EB EC ED EF EG EH El EJ EK EL EM EN EXPENSES PV FACTOR @ 10% PVOF PAYMENTS WEIGHT DURATION 4.55 0.9091 0.7513 0.4340 0.4340 4 4 3.01 0.2869 0.8608 6 PRESENT VALUE OF ALL PAYMENTS 7.5507 0.7209 1.2948 DURATION 1.2948 YEARS 9 10 W = WEIGHT OF 1 YEAR ZERO COUPON BOND 1-W WEIGHT OF 4 YEAR ZERO COUPON BOND 1.2948 W(1+(1-W)(4) 2.7052 W(3) 0.9017 W 12 13 14 15 16 17 18 19 4 H KE CAPM UTILITY, SH beta bond c future INDEX INTL CAP BUD ING PV, FV, ANNUITYDIR dean YIELD bond stru WACC ex div DN11 福 130% 11-10-2018

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