a. Suppose that this pension fund is obligated to pay out $800,000 per year in perpetuity. What
Question:
a. Suppose that this pension fund is obligated to pay out $800,000 per year in perpetuity. What should be the maturity and face value of the zero-coupon bond it purchases to immunize its obligation?
b. Now suppose the interest rate immediately increases to 8.1%. How should the fund rebalance in order to remain immunized against further interest rate shocks? Ignore transaction costs.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 100% (1 review)
a The present value of the funds obligation is 800000008 10 mil...View the full answer
Answered By
Douglas Makokha
Unlock Academic Success with Dedicated Tutoring and Expert Writing Support!
Are you ready to excel in your academics? Look no further! As a passionate tutor, I believe that dedication and hard work are the keys to achieving outstanding results. When it comes to academics, I strive to provide nothing but the best for every student I encounter.
With a relentless thirst for knowledge, I have extensively researched numerous subjects and topics, equipping myself with a treasure trove of answers to tackle any question that comes my way. With four years of invaluable experience, I have mastered the art of unraveling even the most intricate problems. Collaborating with esteemed writers has granted me exclusive access to the trade secrets utilized by the industry's top professionals.
Allow me the pleasure of assisting you with your writing assignments. I thrive on challenges and will guide you through any obstacles you may face. Together, we will unlock your academic potential and pave the way for your success.
4.90+
60+ Reviews
345+ Question Solved
Related Book For
Essentials Of Investments
ISBN: 9780073368719
7th Edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
Question Posted:
Students also viewed these Business questions
-
There are three assets, A, B and C, where A is the market portfolio and C is the risk-free asset. The return on the market has a mean of 12% and a standard deviation of 20%. The risk-free asset...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Should water be treated as a public good or a commodity (common treasury)? Should water pollution be controlled by civil law or criminal law Should there be a human right to water? Please provide...
-
1. Conduct a SWOT analysis for HHI's proposed electronic commerce Web site. You can use the information in the case narrative, your personal knowledge of the retail hardware industry, and information...
-
A survey conducted by the National Endowment for the Arts asked, Have you read a book within the last year? What response bias might arise from this question?
-
Two hunters shoot at a deer, which is hit by exactly one bullet. If the first hunter hits his target with probability 0.3 and the second with probability 0.6, what is the probability that the second...
-
You are now conducting your third annual audit of the financial statement of Elite Corporation for the year ended December 31, 19X1. You decide to employ unrestricted random number statistical...
-
FDP Company produces a variety of home security products. Gary Price, the companys president, is concerned with the fourth quarter market demand for the companys products. Unless something is done in...
-
To discover whether an unknown gas is monatomic or diatomic, an experimenter takes a 2.0 L sample of the gas at STP and heats this sample to 100C at constant volume. (a) The gas absorbs 180 J of...
-
What will be the rate of return in Example 11.5 if the manager forecasts that in two years the yield to maturity on 18-year maturity bonds will be 10% and that the reinvestment rate for coupons will...
-
Show that the duration of a perpetuity increases as the interest rate decreases, in accordance with Rule 4. Rule 4: With other factors held constant, the duration and interest rate sensitivity of a...
-
Write two chemical equations, one that shows H 2 O reacting (with HBr) as a Brnsted base and a second that shows H 2 O reacting (with NH 3 ) as a Brnsted acid.
-
How do I calculate a break even analysis when I am looking at two compensation plans?
-
Why is financing management so important and what to expect? Explain
-
How has the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 affected this institution? What provisions most directly affect the company? What was the institution lobbying for in the...
-
What does Mart mean when he states that there is no racial hatred because there are no races? Explain Mart's position and give your own opinion .
-
Super Bowl Sunday is the biggest day for pizza sales in the United States yet the price of pizza isn't higher that day. The price of other things that use flour are also priced normally. Does this...
-
A small company has the technology to develop a new personal data assistant (PDA), but it worries about sales in the crowded market. They estimate that it will cost $600,000 to develop, launch, and...
-
1. As a general strategy, would you recommend that Carl take an aggressive approach to capacity expansion or more of a wait-and-see approach? 2. Should Carl go with the option for one facility that...
-
Consider these long-term investment data: i. The price of a 10-year $ 100 par-zero coupon inflation-indexed bonds is $ 84.49. ii. A real estate property is expected to yield 2 percent per quarter...
-
What is the standard deviation of returns on stocks X and Y?
-
You are considering two alternative two-year investments. You can invest in a risky asset with a positive risk premium and returns in each of the two years that will be identically distributed and...
-
A steel container expands in volume 1 percent when the pressure within it is increased by 10000 psi. At standard pressure, 14.7 psi absolute, it holds 0.5-slug of water; rho = 1.94 slug/ft^3. For K =...
-
Sketch a cumulative flow diagram that represents the growth and dissipation of a rush hour period at a toll bridge with time-independent capacity. 1) Identify on the diagram: the arrival curve A(t),...
-
(a) Use the conversion factor 10 psi = 0.06895 MPa to convert 4360 psi to MPa. (Note: You must show step by step calculations to get a full mark.) (b) Use the conversion factors 1ft = 1728 inand 1...
Study smarter with the SolutionInn App