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Silhouette Enterprises must make a balloon loan payment of $1,000,000 in 3 years. The firm’s treasurer wants to purchase a bond that will provide funds for repayment and minimize reinvestment risk. Assume the company has the following three investment alternatives (all zero coupon bonds with face values of $1,000,000). Market rates are at 8.0%. All bonds are noncallable and are otherwise similar except as noted. Which bond best meets the treasurer’s requirements? A. A 3-year, zero coupon bond priced to yield 8.0%. B. A 4-year, zero coupon bond priced to yield 8.5%. C. A 2-year, zero-coupon bond priced to yield 9.0%. |