You have an obligation to pay $148 in four years and 2 months. In which bond would you invest your $100 to accumulate this amount, with relative certainty, even if the there is a parallel shift in the term structure of interest rates? All bonds pay interest annually and have a face value of $100.
a)a 6-year; 10% coupon par value bond
b)a 5-year; 10% coupon par value bond
c)none of the above
b) a 5-year; 10% coupon par value bond. Because at the end of the term you will receive 100 + 100*0.1*5 = $150 This amount of money will cover the $148 obligation.