Contingent Immunization

When determining the required terminal value, why are coupons not included. I am lookinig at the example in Schweser. The bond in question is a $20 mil with 9% semi annual coupons. The required terminal value is calcualted as $20 mil x 1.04^6. Why were coupons not included?

compounding means they are included if not, at the end you would only get your principal back + n x coupon

the coupons aren’t included because you’re calculating the value you need at the maturity of your portfolio which is simply today’s value multiplied by your required return. in other parts of the contingent immunization problem solving you will solve for the current market value of your portfolio and that is where coupons will be captured.

yes, you are projecting future value of liabilities, not your portfolio

guys, I think you do take coupons into account: first, in the final value as AMOUNT x (1+req.return)^n as you multiply by (1+req.return)^n, you are actually assuming that you need coupons equal to the req.return and that they must be reinvested at the req.return second, in the pv of that divided by (1+immuni.rate)^n as you divide by (1+immuni.rate)^n, you are actually assuming that you will get coupons equal to the immuni rate and that they will be reinvested at the immuni.rate

hala - the question was regarding the required TERMINAL amount. you have a portfolio value multiplied by the required return for that #. although what you posted is accurate (from my glance) you are answering a different question.