An insurance company must make payments to a customer of $12 million in 1 year and $6 million in 3 years. The yield curve is flat at 8%.
a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase?
(Do not round intermediate calculations. Round your answer to 4 decimal places.)
Maturity of zero coupon bond
b. What must be the face value and market value of that zero-coupon bond? (Do not round intermediate calculations.
Enter your answers in millions rounded to 2 decimal places. Omit the " tiny_mce_markerquot; sign in your response.) Face value Market value.