What is the new equity value of the fund

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A pension fund must make two fixed payments (2 liabilities): a first payment of $300 due in 5 years and a second payment of $750 due in 10 years. The current market interest rate is 3% at all maturities. The fund has $1,000 available to invest today. The fund can allocate its assets between 5-year zero-coupon notes and 20-year zero-coupon bonds. Each bond and note has a face value of $1. The fund wants to stabilize its equity/assets ratio. What is the initial equity value of the fund?

Right after the fund is set up, the market yields jump from 3% to 4%. What is the new equity value of the fund?

Reference no: EM133114657

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