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

Expert Solution

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

jeff jeffy answered 1 year ago

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