The insurance firm has two objectives. It wants to earn at least 11% per year, and...

 

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The insurance firm has two objectives. It wants to earn at least 11% per year, and it wishes to immunize its liabilities. It has the following investment opportunities available: Common Stocks Stock A, Dividend 5.0%, Duration 3 years. Stock B, Dividend 14.3%, Duration 7 years. Coupon Bonds 30-YR, Yield 11.0%, Duration 20 years. Zero-Coupon Bonds 3-YR, Yield 1.5%. 5-YR, Yield 2.0%. 7-YR, Yield 2.0%. 10-YR, Yield 2.0%. 20-YR, Yield 3.0%. To match the duration of its liabilities with its investments, the insurance company decides to purchase the 30-year coupon bond and stock B. What are the weights of the portfolio that satisfy the insurance company's requirements? Weight in the 30-year coupon bond: Weight in stock B: Expected return: % % % The insurance firm has two objectives. It wants to earn at least 11% per year, and it wishes to immunize its liabilities. It has the following investment opportunities available: Common Stocks Stock A, Dividend 5.0%, Duration 3 years. Stock B, Dividend 14.3%, Duration 7 years. Coupon Bonds 30-YR, Yield 11.0%, Duration 20 years. Zero-Coupon Bonds 3-YR, Yield 1.5%. 5-YR, Yield 2.0%. 7-YR, Yield 2.0%. 10-YR, Yield 2.0%. 20-YR, Yield 3.0%. To match the duration of its liabilities with its investments, the insurance company decides to purchase the 30-year coupon bond and stock B. What are the weights of the portfolio that satisfy the insurance company's requirements? Weight in the 30-year coupon bond: Weight in stock B: Expected return: % % %

Answer rating: 100% (QA)

To satisfy the insurance companys requirements we need to find the weights of the 30year coupon bond and stock B in the portfolio Let x Weight in the ... View the full answer