easy · Certified Financial Planner Professional Conduct
The Langford family is considering buying zero-coupon bonds to fund a liability due in exactly 12 years.
Why are zero-coupon bonds considered the perfect instrument for this 'immunization' strategy?
- Their convexity is lower than that of an identical coupon bond.
- Zero-coupon bonds are guaranteed to have a higher return than coupon bonds.
- A zero-coupon bond's Macaulay Duration is exactly equal to its maturity.
- They are exempt from federal income tax if held to maturity.
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