In: Finance
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 calculations. Enter your answers in millions.)
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 |