You Are the CFO of a Small Corporation and You

question 99

Essay

You are the CFO of a small corporation and you anticipate that you will have a significant liability of $10 million coming due in five years.You are considering investing enough money in one or both of the following two bonds to protect yourself against interest rate risk: a five-year bond with a coupon rate of 16%,and a ten-year bond with a coupon rate of 12%.Each bond has a yield to maturity of 12%.Assuming duration is a perfect measure of interest rate risk,what combination of the two bonds would provide you with complete protection against interest rate risk?

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Definitions:

Fear Appeal

A marketing strategy that uses the element of fear to motivate the audience to take a certain action or adopt a specific behavior.

Tune Out

The act of ignoring or choosing not to engage with a message, advertisement, or piece of content.

Viewing by Children

Viewing by children pertains to monitoring and managing the content accessible to children on television, the internet, and other digital platforms to ensure it is appropriate for their age group.

Consumers

Individuals or groups who purchase goods and services for personal use or consumption.