Question: My pension plan will pay me $ 1 2 , 5 0 0 once a year for a 1 0 - year period. The first

My pension plan will pay me $

12, 500

once a year for a

10 -

year period. The first payment will come in exactly five years. The pension fund wants to immunize its position.Required:What is the duration of its obligation to me

?

The current interest rate is

7.0 %

per year.If the plan uses

5 -

year and

20 -

year zero

-

coupon bonds to construct the immunized position, how much money ought to be placed in each bond?What will be the face value of the holdings in each zero?

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