Question
In: Finance
An insurance company must make payments to a customer of $8 million in one year and...
An insurance company must make payments to a customer of $8 million in one year and $4 million in four years. The yield curve is flat at 9%.
a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase?
b. What must be the face value and market value of that zero-coupon bond?
Solutions
jeff jeffy answered 4 months agoRelated Solutions
An insurance company must make payments to a customer of $11 million in one year and...
An insurance company must make payments to a customer of $11
million in one year and $7 million in five years. The yield curve
is flat at 6%.
a. If it wants to fully fund and immunize its
obligation to this customer with a single issue of a
zero-coupon bond, what maturity bond must it purchase?
b. What must be the face value and market value
of that zero-coupon bond?
An insurance company must make payments to a customer of $9 million in one year and...
An insurance company must make payments to a customer of $9
million in one year and $4 million in six years. The yield curve is
flat at 7%.
a. If it wants to fully fund and immunize its
obligation to this customer with a single issue of a
zero-coupon bond, what maturity bond must it purchase? (Do
not round intermediate calculations. Round your answer to 4 decimal
places.)
b. What must be the face value and market value
of that...
An insurance company must make payments to a customer of $12 million in one year and...
An insurance company must make payments to a customer of $12
million in one year and $7 million in four years. The yield curve
is flat at 5%.
a. If it wants to fully fund and immunize its
obligation to this customer with a single issue of a
zero-coupon bond, what maturity bond must it purchase? (Do
not round intermediate calculations. Round your answer to 4 decimal
places.)
b. What must be the face value and market value
of that...
Tower Insurance must make payments to a customer of $10 million in one year and $4...
Tower Insurance must
make payments to a customer of $10 million in one year and $4
million in five years. The yield curve is flat at 10%. If it wants
to fully fund and immunize its obligation to this customer with a
single issue of a zero-coupon bond, what maturity bond must it
purchase? What must be the face value and market value of that
zero-coupon bond?
Alpha Insurance Company is obligated to make payments of $2 million, $3 million, and $4 million...
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.
a.A 10-year 5% coupon...
Alpha Insurance Company is obligated to make payments of $2 million, $3 million, and $4 million...
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 )
Alpha Insurance Company is obligated to make payments of $2 million, $3 million, and $4 million...
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 )
A company must make payments of $10 annually in the form of a 10- year annuity-...
A company must make payments of $10 annually in the form of a
10- year annuity- immediate. It plans to buy two zero coupon bonds
to fund these payments. The first bond matures in 2 years and the
second bond matures in 9 years, and both are purchased to yield 10%
effective. What face amount of each bond should the company buy in
order to be immunized from small changes in the interest rate
(redington immunization)?
A company must make payments of $10 annually in the form of a 10- year annuity-...
A company must make payments of $10 annually in the form of a
10- year annuity- immediate. It plans to buy two zero coupon bonds
to fund these payments. The first bond matures in 2 years and the
second bond matures in 9 years, and both are purchased to yield 10%
effective. What face amount of each bond should the company buy in
order to be immunized from small changes in the interest rate
(redington immunization)?
Hands Insurance Company issued a $90 million, one-year note at 8 percent add-on annual interest (paying...
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rate and a 10 percent yield. Immediately after these transactions
were simultaneously closed, all market interest rates increased 1.5
percent (150 basis points). a. What is the true market value of the
loan...
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