Question

In: Finance

You manage a pension fund that will provide retired workers with lifetime annuities. You determine that...

You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are essentially going to resemble level perpetuities of $4 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year and 15-year maturity zero-coupon bonds.

Requirement 1:

How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? (Enter your answer in millions. Round your answers to 2 decimal places.)

Market value
  Five-year million
  Twenty-year million
Requirement 2:

What must be the face value of the two zeros to fund the plan? (Enter your answer in millions. Round your answers to 2 decimal places.)

Face value
  Five-year million
  Twenty-year million

Solutions

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