Question
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
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zero-coupon bond, what maturity bond must it purchase? (Do
not round intermediate calculations. Round your answer to 4 decimal
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b. What must be the face value and market value
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make payments to a customer of $10 million in one year and $4
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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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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
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ii. Suppose the company’s payment obligations are fully funded and
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the portfolio. (7 marks )
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