Question

An insurance company must make payments to a customer of $8 million in one year and $4 million in four years. The yield curve is flat at 9%. a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (Do not round intermediate calculations. Round your answer to 4 decimal places.) b. What must be the face value and market value of that zero-coupon bond?

Answer #1

Additional Question 2: An insurance company must make payments
to a customer of $10 million in one year and $4 million in five
years. The yield curve is flat at 10%. Use annual compounding. a)
If it wants to fully fund and immunize its obligation to this
customer with a single issue of a zero-coupon bond, what maturity
bond must it purchase? b) What must be the face value and market
value of that zero-coupon bond

SHOW ALL WORK PLEASE
QUESTION: An insurance company must make payments to a customer
of $10 million in 5 years and $25 million in 30 years. The yield
curve is flat at 8%.
A) What is the present value of its obligation?
B) What is the duration of its obligation?
C) If it wants to fully fund and immunize its obligation to this
customer by buying a single issue of a zero-coupon bond, what face
value the bond must have?...

A corporate pension plan has to make the following payments over
the next few years:
Year
1
2
3
4
Amount ($ million)
27
31
37
45
The appropriate interest rate is 7%.
What is the present value of the liability (in $ million)?
What is the duration of the liability?
What is the duration of a perpetuity if the yield is 7%?
The fund wants to immunize its interest rate risk by investing
in a perpetuity and a 1-year...

. A small insurance company has liabilities of $5 million in 10
years’ time and $6 million in 11 years’ time. The current interest
rate is 5.21% per annum effective. The investment manager plans to
buy one 5-year zero coupon bond of maturity value $A million and
one 15-year zero coupon bond of maturity value $B million. Find the
values of A and B that immunize this portfolio.

We
have liabilities of $50 million per year for the next 3 years, with
payments made at the end of the year. The term structure of
interest rates is given by ?1 = ?2 = ?3 = 8%. We want to immunize
these liabilities by using a 1-year zero coupon bond with face
value of $1 million and a 3-year coupon bond with face value of
$0.1 million, coupon rate 5%, and annual coupon payments. Assuming
the bonds are correctly...

A company must make payments of $10 annually in the form of a
10- year annuity- immediate. It plans to buy two zero coupon bonds
to fund these payments. The first bond matures in 2 years and the
second bond matures in 9 years, and both are purchased to yield 10%
effective. What face amount of each bond should the company buy in
order to be immunized from small changes in the interest rate
(redington immunization)?

A company must make payments of $10 annually in the form of a
10- year annuity- immediate. It plans to buy two zero coupon bonds
to fund these payments. The first bond matures in 2 years and the
second bond matures in 9 years, and both are purchased to yield 10%
effective. What face amount of each bond should the company buy in
order to be immunized from small changes in the interest rate
(redington immunization)?

Pension funds pay lifetime annuities to recipients. If a firm
remains in business indefinitely, the pension obligation will
resemble a perpetuity. Suppose, therefore, that you are managing a
pension fund with obligations to make perpetual payments of $2.6
million per year to beneficiaries. The yield to maturity on all
bonds is 16%.
a. If the duration of 5-year maturity bonds with
coupon rates of 12% (paid annually) is 4.0 years and the duration
of 20-year maturity bonds with coupon rates...

Pension funds pay lifetime annuities to recipients. If a firm
remains in business indefinitely, the pension obligation will
resemble a perpetuity. Suppose, therefore, that you are managing a
pension fund with obligations to make perpetual payments of $3.7
million per year to beneficiaries. The yield to maturity on all
bonds is 20%.
a. If the duration of 5-year maturity bonds with
coupon rates of 16% (paid annually) is 3.7 years and the duration
of 20-year maturity bonds with coupon rates...

Background: Suppose you will go to graduate school for 3 years
beginning in year 5. Tuition is $25,109 per year, due at the end of
each school year. Assume annual compounding. In the above
description, if you see a flat yield curve of 0.08 for example,
then it means that the yield at all maturities is 8%.
Question: Suppose in the question above, the tuition obligations
have a Macaulay duration of 6.36 in years, and that you wish to
immunize...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 10 minutes ago

asked 12 minutes ago

asked 19 minutes ago

asked 20 minutes ago

asked 21 minutes ago

asked 32 minutes ago

asked 34 minutes ago

asked 43 minutes ago

asked 46 minutes ago

asked 50 minutes ago

asked 53 minutes ago