An insurance company has liabilities of £15 million due in 11 years' time and £6 million due in 15 years' time. The assets of the company consist of two zero-coupon bonds, one paying  million in 7 years' time and the other paying  million in 19 years' time. The current interest rate is 7% per annum effective. Find the nominal value of Y (i.e. the amount, IN MILLIONS, that bond Y pays in 19 year's time) such that the first two conditions for Redington’s theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
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Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
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An insurance company has liabilities of £15 million due in 11 years' time and £6 million due in 15 years' time.

The assets of the company consist of two zero-coupon bonds, one paying  million in 7 years' time and the other paying  million in 19 years' time.

The current interest rate is 7% per annum effective.

Find the nominal value of Y (i.e. the amount, IN MILLIONS, that bond Y pays in 19 year's time) such that the first two conditions for Redington’s theory of immunisation are satisfied.

Express your answer to THREE DECIMAL PLACES.

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