Find the duration of the plans obligations

Assignment Help Financial Management

Reference no: EM131926813

Information for 1 and 2:

10% Coupon.

Price is $1200 Callable in 15 years.

Call price is $1100.

Matures in 30 years.

Par is $1000.

1. Find Yield to Maturity.

2. Find Yield to Call.

3. As interest rates drop, prices of bonds trading in secondary markets will?

a. Rise

b. Fall

4. As interest rates change, the prices of longer term bonds change HOW when compared to the rate of change of shorter term bonds?

a. Faster and more

b. Slower and less

c. The same

5. All else equal, prices of bonds with longer maturity will:

a. Change faster and more than bonds with shorter maturity.

b. Change slower and less than bonds with shorter maturity.

c. Change the same versus bonds with shorter maturity.

6. A pension plan is obligated to make disbursements of $1 million, $2 million, and $1 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 10% annually.

7. 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: EM131926813

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