You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are (approximately) level perpetuities of $1 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year maturity and 20-year maturity zero-coupon bonds. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? 4 million for 5 year bond and 6 million of 20-year bond. 6 million for 5 year bond and 4 million of 20-year bond. 6.67 million for 5 year bond and 3.33 million of 20-year bond. O 3.33 million for 5 year bond and 6.67 million of 20-year bond.

You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are (approximately) level perpetuities of $1 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year maturity and 20-year maturity zero-coupon bonds. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? 4 million for 5 year bond and 6 million of 20-year bond. 6 million for 5 year bond and 4 million of 20-year bond. 6.67 million for 5 year bond and 3.33 million of 20-year bond. O 3.33 million for 5 year bond and 6.67 million of 20-year bond.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section5.A: Continous Compounding And Discounting

Problem 1P

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