Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN: 9781337902571
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 15, Problem 6Q
Summary Introduction

To explain: The maturity matching approach and its difference from aggressive or conservative approach and the effect of this approach on profits and on risk and, the approach which is most suitable.

Introduction:

Current Assets:

Any asset, which can be reported in the form of cash within the duration of 1 financial year is classified as current assets.

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An insurance company has liabilities of £7 million due in 10 years' time and £9 million due in 17 years' time. The assets of the company consist of two zero-coupon bonds, one paying £X million in 7 years' time and the other paying £Y million in 20 years' time. The current interest rate is 6% per annum effective. Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays in 7 year's time) such that the first two conditions for Redington's theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.
An individual is investing in a market where spot rates and forward rates apply. In this market, if at time t=0 he agrees to invest £5.3 for two years, he will receive £7.4 at time t=2 years. Alternatively, if at time t=0 he agrees to invest £5.3 at time t=1 for either one year or two years, he will receive £7.5 or £7.3 at times t=2 and t=3, respectively. Calculate the price per £5,000 nominal that the individual should pay for a fixed-interest bond bearing annual interest of 6.6% and is redeemable after 3 years at 110%. State your answer at 2 decimal places.
The one-year forward rates of interest, f+, are given by: . fo = 5.06%, f₁ = 6.38%, and f2 = 5.73%. Calculate, to 4 decimal places (in percentages), the three-year par yield.
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