es Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
es 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 20%. Required: a. If the duration of 5-year maturity bonds with coupon rates of 16% (paid annually) is 3.7 years and the duration of 20-year maturity bonds with coupon rates of 9% (paid annually) is 6.3 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? (Do not round intermediate calculations. Enter your answers in millions rounded to 5 decimal places.) 5-year bond 20-year bond Holdings million million b. What will be the par value of your holdings in the 20-year coupon bond? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.) Par value es 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 20%. Required: a. If the duration of 5-year maturity bonds with coupon rates of 16% (paid annually) is 3.7 years and the duration of 20-year maturity bonds with coupon rates of 9% (paid annually) is 6.3 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? (Do not round intermediate calculations. Enter your answers in millions rounded to 5 decimal places.) 5-year bond 20-year bond Holdings million million b. What will be the par value of your holdings in the 20-year coupon bond? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.) Par value
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Given that log (2) 0.91 and log (5) 2.1, evaluate each of the following. Hint: use the properties of logarithms to rewrite the given logarithm in terms of the the logarithms of 2 and 5. a) log(0.4)~...
-
The CPA firm of Simon, Winslow, and Tate has been approached by a client who is interested in information about the possibility of establishing a minors Section 2503(c) trust. Go to the Web site...
-
On January 1 of this year. Clearwater Corporation sold bonds with a face value of $750,000 and a coupon rate of 8 percent. The bonds mature in 10 years and pay interest annually every December 31....
-
Melody Corporation is a manufacturing company that produces a single product known as "Jupiter." Melody uses the first-in, first-out (FIFO) process costing method for both financial statement and...
-
A technique for measuring convection heat transfer coefficients involves bonding one surface of a thin metallic foil to an insulating material and exposing the other surface to the fluid flow...
-
To win the Wisconsin lottery Powerball, a player must correctly pick 5 numbers from 1 to 69 (in any order) and the same Powerball number from 1 to 26. There are 292,201,338 possible five number picks...
-
Suppose an economist estimates that the demand for movie tickets exhibits price elasticity of 0.75. How would you respond to Palace Cineplexs enquiry about the wisdom of a contemplated increase in...
-
You invest $5,000 annually for 25 years into a mutual fund that earns 12% annually, and you reinvest all distributions. a. What will your shares be worth in 25 years, assuming no load fees or 12b-1...
-
Suppose that the rate of change of a quantity is given by the function f(x) = -3x+x. By what amount does the quantity change from x = 2 to x = 3?
-
Suppose CM Capital is negotiating a financing deal with a hot startup firm. If the negotiation is successful, which will be known in three months, the venture capitalist is going to commit...
-
Write log3 (81y) as a sum.
-
In September 2020, the Federal Reserve (Fed) indicated that it expected interest rates to stay near zero until at least 2023. Then in March 2022, the Fed started raising interest rates and did so...
-
Start Excel. Download and open the file named Exp19_Excel_Ch09_Cap_HouseCleaners.xfsx. Grader has automatically added your last name to the beginning of the filename. 1 2 The title and column labels...
-
How many years will it take a $700 balance to grow into $900 in an account earning 5%?
Study smarter with the SolutionInn App