QUESTION 30 A pension plan is obligated to make disbursements of $2 million, $3 million, and...

QUESTION 30

A pension plan is obligated to make disbursements of $2 million, $3 million, and $2 million at the end of each of the next three years, respectively. The annual interest rate is 10%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan?

		9.46% to zero-coupon bonds; 90.54% to perpetuities
		100% to zero-coupon bonds: 0% to perpetuities
		80% to zero-coupon bonds; 20% to perpetuities
		90.54% to zero-coupon bonds; 9.46% to perpetuities

wich one is correct

Solutions

Expert Solution

FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

ANSWER: 90.54% to zero-coupon bonds; 9.46% to perpetuities

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A pension plan is obligated to make disbursements of $3 million, $11 million, and $9 million...

A pension plan is obligated to make disbursements of $3 million, $11 million, and $9 million at the end of each of the next three years, respectively. The interest rate is 9% annually. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Round your answers to 2 decimal places. Omit the "%" sign...

1. A pension plan is obligated to make disbursements of $1 million, $2 million, and $1...

1. A pension plan is obligated to make disbursements of $1 million, $2 million, and $1 million at the end of each of the next three years, respectively. Find the duration of the plan obligations if the interest rate is 10% annually. If the level of interest rates goes down by 50 basis points (one basis point is 0.01%), how much do you expect the pension plan obligation to go up (in percentage terms)?

Problem 11-11 A pension plan is obligated to make disbursements of $10 million, $2 million, and...

Problem 11-11 A pension plan is obligated to make disbursements of $10 million, $2 million, and $10 million at the end of each of the next three years, respectively. The interest rate is 9% annually. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Round your answers to 2 decimal places. Omit the...

A pension plan is obligated to make disbursements of $100,000, $200,000, and $1 million at the...

A pension plan is obligated to make disbursements of $100,000, $200,000, and $1 million at the end of each of the next three years, respectively. The company wants to fully fund and immunize this liability by combining a 2-year zero-coupon bond with a perpetuity. The yield to maturity on all bonds is 8%. To fully fund and immunize the liability, ___ must be invested in the zero-coupon bond and ___ must be invested in the perpetuity. $793,419.45; $264,473.15 $581,840.93; $476,051.67...

A pension plan is obligated to make disbursements of $1.8 million, $2.8 million, and $1.8 million...

A pension plan is obligated to make disbursements of $1.8 million, $2.8 million, and $1.8 million at the end of each of the next three years, respectively. The annual interest rate is 9%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Do not round intermediate calculations. Round your answers to 2 decimal...

A pension plan is obligated to make disbursements of $8 million, $6 million, and $8 million...

A pension plan is obligated to make disbursements of $8 million, $6 million, and $8 million at the end of each of the next three years, respectively. The interest rate is 10% annually. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Round your answers to 2 decimal places. Omit the "%" sign...

A pension plan is obligated to make disbursements of $9 million, $7 million, and $5 million...

A pension plan is obligated to make disbursements of $9 million, $7 million, and $5 million at the end of each of the next three years, respectively. The interest rate is 18% annually. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Round your answers to 2 decimal places. Omit the "%" sign...

A pension plan is obligated to make disbursements of $2.4 million, $3.4 million, and $2.4 million...

A pension plan is obligated to make disbursements of $2.4 million, $3.4 million, and $2.4 million at the end of each of the next three years, respectively. The annual interest rate is 10%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Do not round intermediate calculations. Round your answers to 2 decimal...

A pension plan is obligated to make disbursements of $4 million, $9 million, and $7 million...

A pension plan is obligated to make disbursements of $4 million, $9 million, and $7 million at the end of each of the next three years, respectively. Find the duration of the plan's obligations if the interest rate is 9.5% annually. (Round your answer to 4 decimal places.)

A pension plan is obligated to make disbursements of $4 million, $9 million, and $4 million...

A pension plan is obligated to make disbursements of $4 million, $9 million, and $4 million at the end of each of the next three years, respectively. The interest rate is 18% annually. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Round your answers to 2 decimal places. Omit the "%" sign...

Subjects