Question: Question 4 8 points Save Answer Jenny manages a pension fund that will provide retired workers with lifetime pensions. She has determined that the payouts

Question 4 8 points Save Answer Jenny manages a pension fund

Question 4 8 points Save Answer Jenny manages a pension fund that will provide retired workers with lifetime pensions. She has determined that the payouts of the fund approximate a perpetuity of $1,700,000 per year. The applicable interest rate is 10% compounded annually. Jenny plans to fully fund the pension obligation with 5-year and 20-year maturity zero coupon bonds (8 total marks). a. How much in dollars should Jenny invest in each of the two zero coupon bonds to immunize the obligation against interest rate changes? (6 marks) b. What would be the face value (i.e., $ value at maturity) of each of the two zero coupon bonds funding the plan? Assume annual compounding. (2 marks) Attach File Browse My Computer

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