One-year zero-coupon bonds and perpetuities

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Reference no: EM132020194

A pension plan is obligated to make disbursements of S1 million, $2 million, and $1 million at the end of each of the next three years, respectively. The annual interest rate is 10%. If the plan 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: EM132020194

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