You Answered Correct Answer A life insurance company expects to pay the beneficiary of a policy $3,000,000 in 15 years from today. Suppose the manager of the insurance company wants to immunize her firm against interest rate risk and has two assets available as investments. The assets' information is below: Bond Bond A Bond B Time-to- Maturity 20 years 30 years 694 bonds 345 bonds 714 bonds O144 bonds Coupon Rate Yield 290 bonds 10% 4% 6% 6% How many of Bond A should the insurance company purchase to immunize against interest rate risk? Price $1,458.80 $724.70 Duration 11.03 years 15.80 years

You Answered Correct Answer A life insurance company expects to pay the beneficiary of a policy $3,000,000 in 15 years from today. Suppose the manager of the insurance company wants to immunize her firm against interest rate risk and has two assets available as investments. The assets' information is below: Bond Bond A Bond B Time-to- Maturity 20 years 30 years 694 bonds 345 bonds 714 bonds O144 bonds Coupon Rate Yield 290 bonds 10% 4% 6% 6% How many of Bond A should the insurance company purchase to immunize against interest rate risk? Price $1,458.80 $724.70 Duration 11.03 years 15.80 years

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 5P

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