Question
In: Finance
You manage a pension fund that will provide retired workers with lifetime annuities. You determine that...
You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are essentially going to resemble level perpetuities of $1.3 million per year. The interest rate is 7%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds.
a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 1 decimal place.)
Market Value
Five-year = $__________ million
Twenty-year = $ __________ million
b. What must be the face value of the two zeros to fund the plan? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.)
Face Value
Five-year = $ __________ million
Twenty-year = $ __________million
Solutions
Expert Solution
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jeff jeffy answered 1 year agoRelated Solutions
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lifetime annuities. You determine that the payouts of the fund are
essentially going to resemble level perpetuities of $4 million per
year. The interest rate is 10%. You plan to fully fund the
obligation using 5-year and 15-year maturity zero-coupon bonds.
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necessary to fund the plan if you desire an immunized position?
(Enter your answer in...
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obligation using 5-year and 20-year maturity zero-coupon
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zeros will be necessary to fund the plan if you desire an immunized
position? (Do not round intermediate calculations....
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a. How much market value of each of
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You manage a pension fund that will provide retired workers with lifetime annuities. You determine that...
You manage a pension fund that will provide retired workers with
lifetime annuities. You determine that the payouts of the fund are
essentially going to resemble level perpetuities of $1 million per
year. The interest rate is 10%. You plan to fully fund the
obligation using 5-year and 20-year maturity zero-coupon
bonds.
a. How much market value of each of
the zeros will be necessary to fund the plan if you desire an
immunized position? (Do not round intermediate
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remains in business indefinitely, the pension obligation will
resemble a perpetuity. Suppose, therefore, that you are managing a
pension fund with obligations to make perpetual payments of $2.6
million per year to beneficiaries. The yield to maturity on all
bonds is 16%.
a. If the duration of 5-year maturity bonds with coupon rates of
12% (paid annually) is 4.0 years and the duration of 20-year
maturity bonds with coupon rates...
Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the pension...
Pension funds pay lifetime annuities to recipients. If a firm
remains in business indefinitely, the pension obligation will
resemble a perpetuity. Suppose, therefore, that you are managing a
pension fund with obligations to make perpetual payments of $2.6
million per year to beneficiaries. The yield to maturity on all
bonds is 16%.
a. If the duration of 5-year maturity bonds with
coupon rates of 12% (paid annually) is 4.0 years and the duration
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Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the pension...
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remains in business indefinitely, the pension obligation will
resemble a perpetuity. Suppose, therefore, that you are managing a
pension fund with obligations to make perpetual payments of $2.5
million per year to beneficiaries. The yield to maturity on all
bonds is 20%.
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coupon rates of 16% (paid annually) is 3.7 years and the duration
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