This problem has been solved! See the answer A court has ordered Security Enterprises to pay…

This problem has been solved!See the answerA court has ordered Security Enterprises to pay 200000 in two years and 500000 in five years. In order to meet this important liability, they wish to invest in a combination of two-year 10% par-value bonds with annual coupons and five-year zero-coupon bonds. Each of these is sold to yield an annual effective yield of 4%. how much of each type of bond should be purchased so that the present value and duration conditions of Redington immunization are satisfied at the current 4% rate? Is the convexity condition also satisfied?—————————-So I begin by dividing the problem by concentrating on the present value of the 200000. I use the price formula…but my pricing seems very wrong..1361After which I tried to use that number to figure out the duration of the 2 year bond.~=3.5733.575(a/[a+b])+5(b/[a+b])=2….this is where it gets really weird.1.575a = -3bPlease help.



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