Problem on the macaulay duration of assets

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Reference no: EM131794451

Question: An insurance company has liabilities that will require payments of 1.5 million Polish zloties (PLN) at the end of each year for the next 15 years and 2.5 million PLN at the end of each year for the 10 years that follow. The assets that back the liabilities are invested in a twenty-year bond with par value of K (paid at bond's maturity), and an annual level coupon paid at the end of each year in the amount of C. You are given that the annual effective interest rate is 4% and that the Macaulay duration of assets exceeds the Macaulay duration of liabilities by 1.143. Find the ratio of C/K.

Reference no: EM131794451

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