A pension plan is obligated to make disbursements of $1.9 million, $2.9 million, and $1.9 million at the end of each of the next three years, respectively. The annual interest rate is 11%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one - year zero - coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan?

A pension plan is obligated to make disbursements of $1.9 million, $2.9 million, and $1.9 million at the end of each of the next three years, respectively. The annual interest rate is 11%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one - year zero - coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 20P

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