Find the duration of the plan obligations

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Reference no: EM132017208

1. A pension plan is obligated to make disbursements of $10 million, $25 million, and $12 million at the end of each of the next three years, respectively. Find the duration of the plan’s obligations if the interest rate is 7% annually.

2. If the plan from the question above wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan?

Reference no: EM132017208

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