the insurance company uses an asset/liability matching approach and needs to determine the best strategy to finance a $10 million liability coming due in 7 years. To fund the liability the company plans to buy principal STRIPS that mature in 7 years. The STRIPS have a $10,000 face value per STRIP and pay a 5% APR with semi-annual compounding. How much must he insurer spend today to fully fund the outflow?

Answer rating: 100% (QA)

To determine how much the insurer must spend today to fully fund the liability using principal STRIP... View the full answer