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In: Finance
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 zero-coupon bond? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.)
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jeff jeffy answered 1 year 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?
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An insurance company must make payments to a customer of $9
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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
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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...
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a.A 10-year 5% coupon...
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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 )
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A company must make payments of $10 annually in the form of a
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effective. What face amount of each bond should the company buy in
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(redington immunization)?
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