Randy currently has an obligation that he will pay $1 million a year for the next...

Randy currently has an obligation that he will pay $1 million a year for the next 3 years, what is the duration of his obligation if the appropriate discount rate is 5%?

If Randy wants to immunize his obligation using a 1-year zero coupon bond and a perpetuity both yielding 6%. I rounded the durations to two decimal places to minimize rounding errors.

What is the weight he should invest in the zero?

What is the weight he should invest in the perpetuity?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

I HAVE TAKEN DURATION TO 4 DECIMALS SO THAT ACCURATE ANSWER CAN BE ARRIVED AT. THANK YOU

IF YOU STILL WANT ME TO CHANGE TO DURATION TO 2 DECIMALS AND CALCULATE, WILL DO THAT ALSO

jeff jeffy answered 10 months ago

Next > < Previous

Related Solutions

Dan is 65 and is retiring this year. He currently has $1 million in his account....

Dan is 65 and is retiring this year. He currently has $1 million in his account. Assume his life expectancy is 95 and the current interest rate is 9%. Dan wants to use up all the money before he dies. How much should he withdraw at the beginning of each month to cover his daily living expenses? A. $89,299.40 B. $7,986.33 C. $7,441.62 D. $8,046.23

A US bank has an obligation to pay $100 million in 10 years. The market interest...

A US bank has an obligation to pay $100 million in 10 years. The market interest rate is 8%.The bank’s CFO wishes to fund the obligation using 5-yearzero-coupon bonds and perpetuities paying annualcoupons. How can the CFO finance the obligation using these bonds while mitigating interest rate risk? How much should the CFO invest in the twobonds? If interest rates increase by 20bps, how will it affect our decision? please solve on excel. really appreciate!

Q. A bank has an obligation to pay $100 million in 10 years. The market interest...

Q. A bank has an obligation to pay $100 million in 10 years. The market interest rate is 8%. The bank’s CFO wishes to fund the obligation using 5-year zero-coupon bonds and perpetuities paying annual coupons. How can the CFO finance the obligation using these bonds while mitigating interest rate risk ? How much should the CFO invest in the two bonds? If interest rates increase by 20bps, how will it affect our decision?

An insurance company accepts an obligation to pay $7,000 at the end year 1, pay $8,000...

An insurance company accepts an obligation to pay $7,000 at the end year 1, pay $8,000 at the end of year 2, and pay $9,600 at the end of year 3. The insurance company purchases a combination of the following three bonds in order to exactly match its obligation. • Bond 1: 1-year 6% annual coupon bond with yield rate of 8%. • Bond 2: 2-year zero coupon bond with yield rate of 7%. • Bond 3: 3-year 20% annual...

A fund will need to pay out $2 million next year, $3 million the following year,...

A fund will need to pay out $2 million next year, $3 million the following year, and then $5 million in the fifth year . If the discount rate is 7%, what is the Macaulay duration of this set of payments? A. 3.10 B. 2.98 C. 3.15 D. 3.20

A fund will need to pay out $2 million next year, $3 million the following year,...

A fund will need to pay out $2 million next year, $3 million the following year, and then $5 million in the fifth year. If the discount rate is 6%, what is the Macaulay duration of this set of payments? A. 3.05 B. 3.12 C. 2.85 D. 3.50

Question 1. John is currently an engineer at an automobile manufacturer in Ontario. Next year he...

Question 1. John is currently an engineer at an automobile manufacturer in Ontario. Next year he is going to start his own automobile parts manufacturing company in Vancouver. He wants his company to be entirely e-commerce and he wants to sell his products to retailers of automotive parts and accessories, such as Lordco. He needs to know how to find and connect with customers but he is unsure how to do so. John also is worried about buying the right...

Randy, a student, has $322 to deposit in a new checkingaccount, but Randy knows he...

Randy, a student, has $322 to deposit in a new checking account, but Randy knows he will not be able to maintain a minimum balance. He will not use an ATM card, but will write a large number of checks. Randy is trying to choose between the unlimited check writing offered by South Trust and the low per-check fee offered by Sun Coast. How many checks would Randy have to write each month for the account at South Trust to...

The projected benefit obligation was $380 million at the beginning of the year and $407 million...

The projected benefit obligation was $380 million at the beginning of the year and $407 million at the end of the year. At the end of the year, pension benefits paid by the trustee were $17 million and there were no pension-related other comprehensive income accounts requiring amortization. The actuary’s discount rate was 5%. What was the amount of the service cost for the year?

Subjects