ension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble a erpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $2.2 million per ear to beneficiaries. The yield to maturity on all bonds is 14.4%. "equired: . If the duration of 5-year-maturity bonds with coupon rates of 10.5% (paid annually) is four years and the duration of 20-year-maturity bonds with coupon rates of 4% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. . What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Answer is complete but not entirely correct. a. 5 year bond $ 1.60 million
ension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble a erpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $2.2 million per ear to beneficiaries. The yield to maturity on all bonds is 14.4%. "equired: . If the duration of 5-year-maturity bonds with coupon rates of 10.5% (paid annually) is four years and the duration of 20-year-maturity bonds with coupon rates of 4% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. . What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Answer is complete but not entirely correct. a. 5 year bond $ 1.60 million
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 9P
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