The pension fund you manage must make a payment of $250,000 in ten years.  The ten-year interest rate is currently 8% per annum.  You want to fund this liability using five-year zero-coupon bonds and perpetuities.  In order to make your bond portfolio immune to interest rate risk, how much in dollars should you invest in five-year zero coupon bonds, and how much in perpetuities?

Answer rating: 100% (QA)

To make the bond portfolio immune to interest rate risk we need to ensure that the value of the bond ... View the full answer