Purchase bonds for this absolute matching strategy

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A company must make yearly payments starting at $100,000 and increasing by 6% every year for 10 years. Payments are due at the end of each year. They can invest in a portfolio of coupon-paying bonds that vary in term from 1 to 10 years (a total of 10 unique bonds). Each bond has a coupon rate equal to the term of the bond (i.e. the 10-year bond has a coupon rate of 10%, the 8-year bond has a coupon rate of 8%). They decide to do an absolute matching strategy to back the liability. At a yield rate of 5% how much would the company need to have available to purchase bonds for this absolute matching strategy?

Reference no: EM13763897

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