In: Finance
Alpha Insurance Company is obligated to make payments of $2
million, $3 million, and $4 million at the end of the next three
years, respectively. The market interest rate is 8% per
annum.
i. Determine the duration of the company’s payment obligations.
ii. Suppose the company’s payment obligations are fully funded and
immunized using both 6-month zero coupon bonds and perpetuities.
Determine how much of each of these bonds the company will hold in
the portfolio. (7 marks )
SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE
FOR SECOND PART, IT IS NOT MENTIONED, THAT ANSWER SHOULD BE WEIGHTS OF 2 BONDS OR AMOUNTS, SO BOTH ANSWERS ARE STATED. ROUNDING IS ALSO NOT MENTIONED. SO IF ANY CHANGE IS NEEDED, LET ME KNOW