Company ABC is required to pay their customers $20,000 after 3 years. Based on an annual...

 

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Company ABC is required to pay their customers $20,000 after 3 years. Based on an annual effective interest rate of 4%, Andy, the company's actuary, uses full immunization strategy to construct a portfolio of assets using a 2-year zero-coupon bond and one of the following zero-coupon bonds: i. 4-year zero-coupon bond ii. 8-year zero-coupon bond Calculate the absolute difference in the par amounts for 2-year zero-coupon bond under (i) and (ii). Company ABC is required to pay their customers $20,000 after 3 years. Based on an annual effective interest rate of 4%, Andy, the company's actuary, uses full immunization strategy to construct a portfolio of assets using a 2-year zero-coupon bond and one of the following zero-coupon bonds: i. 4-year zero-coupon bond ii. 8-year zero-coupon bond Calculate the absolute difference in the par amounts for 2-year zero-coupon bond under (i) and (ii).

Answer rating: 100% (QA)

Explanation The condition that must hold in order to meet full immunization are as follows Condition ... View the full answer