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 $3.0 million per year to beneficiaries. The yield to maturity on all bonds is 20%. Required: 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 of 7% (paid annually) is 6.5 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? (Do not round intermediate calculations. Enter your answers in millions rounded to 5 decimal places.) × Answer is complete but not entirely correct. Holdings 5-year bond 20-year bond $ 1.60000 $ 22.20000 million million b. What will be the par value of your holdings in the 20-year coupon bond? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.) Answer is complete but not entirely correct. Par value $ 41 x

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 $3.0 million per year to beneficiaries. The yield to maturity on all bonds is 20%. Required: 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 of 7% (paid annually) is 6.5 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? (Do not round intermediate calculations. Enter your answers in millions rounded to 5 decimal places.) × Answer is complete but not entirely correct. Holdings 5-year bond 20-year bond $ 1.60000 $ 22.20000 million million b. What will be the par value of your holdings in the 20-year coupon bond? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.) Answer is complete but not entirely correct. Par value $ 41 x

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 4P

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Pension funds pay lifetime annuities to recipients. If a firm will remain 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 $1.9 million per year to beneficiaries. The yield to maturity on all bonds is 19.0%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 11.8% (paid annually) is four years and the duration of 20-year-maturity bonds with coupon rates of 7% (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. b. 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. a. 5 year bond a. 20 year bond b. Par…
Pension funds pay lifetime annuities to recipients. If a firm will remain 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 $2.2 million per year to beneficiaries. The yield to maturity on all bonds is 14.4%. Required: a. 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. b. 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…
Pension funds pay lifetime annuities to recipients. If a firm will remain 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 million per year to beneficiaries. The yield to maturity on all bonds is 16%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 12% (paid annually) is four years and the duration of 20- year-maturity bonds with coupon rates of 6% (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 1 decimal place. b. 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. a. 5 year bond a. 20 year bond b. Par value $…
Pension funds pay lifetime annuities to recipients. If a firm will remain 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 $3.5 million per year to beneficiaries. The yield to maturity on all bonds is 17.5%. a. If the duration of 5-year maturity bonds with coupon rates of 14.8% (paid annually) is four years and the duration of 20-year maturity bonds with coupon rates of 8% (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? (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.) 5-year bond 20-year bond million million b. What will be the par value of your holdings in the 20-year coupon bond? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) Par value million
pension funds pay lifetime annuities to recipients. if a firm will remain 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 million per year to beneficiaries. the yield to maturity on all bonds is 15%. a. if the duration of 5-year maturity bonds with coupon rates of 11% (paid annually) is 4 years and the duration of 20-year maturity bonds with coupon rates of 7% (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?
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