Suppose that you manage a pension fund that has liabilities of $2 million, $4 million, $8...

Suppose that you manage a pension fund that has liabilities of $2 million, $4 million, $8 million, and $10 million coming due in 1, 2, 3, and 4 years, respectively. You want to invest in bonds whose cash flows will exactly match the liabilities. The following bonds are available: 1-year, 2-year, 3-year, and 4-year annual-coupon bonds selling at par; the yields (YTMs) are 1%, 2%, 3%, and 4%, respectively. What's the necessary dollar amount of investment in 1-year bond today?

Expert Solution

ekkarill92 answered 2 years ago

Suppose that a pension fund has to make a payment of $1 million in 2 years...

Suppose that a pension fund has to make a payment of $1 million in 2 years time. It can hold a one year pure discount bond that will pay $1000 in 1 year; or a 3 year bond that will pay a coupon of $100 each year, will be redeemed for $1,000 at the end of the third year. The yield on each bond is 15%. (a) What is the price of each bond? (b) What is the duration of...

Suppose you manage a $2 million fund that consists of four stocks with the following investments:...

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Suppose you manage a $4.815 million fund that consists of four stocks with the following investments:...

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Suppose you manage a $4.485 million fund that consists of four stocks with the following investments:...

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Suppose you manage a $3.87 million fund that consists of four stocks wuth the following investments:...

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

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