Hold to both fully fund and immunize your obligation

Assignment Help Financial Management
Reference no: EM132063022

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 $2.9 million per year to beneficiaries. The yield to maturity on all bonds is 14.5%.

a. If the duration of 5-year maturity bonds with coupon rates of 13.6% (paid annually) is 4 years and the duration of 20-year maturity bonds with coupon rates of 5% (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. Omit the "$" sign in your response.)

5 year bond $  million  

20 year bond $  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. Omit the "$" sign in your response.)

Par value $  million

Reference no: EM132063022

Questions Cloud

Describe various types of enterprise wide accounting system : Describe the various types of enterprise wide accounting systems used in organizations. Discuss the steps involved in the development process.
What would be good options strategy in this case : What would be a good options strategy in this case? Briefly discuss when you would make profits and in what situations would you incur losses?
Fact-gathering the same as interviewing users : Is fact-finding or fact-gathering the same as interviewing users? Give scenarios where fact-finding is better than the other methods in system analysis?
Develop a plan to protect accounting and financial systems : You have been hired by the CFO to develop a plan to protect its accounting and financial systems at a reasonable cost. Suggest a high-level plan for the CFO.
Hold to both fully fund and immunize your obligation : how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation?
Rationalities and modernization in the ika case study : How does IS innovation affect the situation rationalities and modernization in the IKA case study?
Break down complex algorithms before coding : Pseudo code is a great way to break down complex algorithms before coding. It in my opinion is much better and faster than drawing a flowchart.
Each bond will you hold to immunize your portfolio : What weight of each bond will you hold to immunize your portfolio? How will these weights change next year if target duration is now 9 years?
What steps should you take to determine the issue : With Motherboard beep codes what should you do If there is no beep, or if nothing happens after the power button is pressed, what steps should you take to deter

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd