Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble aperpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $1.3 million peryear to beneficiaries. The yield to maturity on all bonds is 14.0%.Required:a. If the duration of 5-year-maturity bonds with coupon rates of 10.0 % (paid annually) is four years and the duration of 20-year-maturitybonds with coupon rates of 5% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you wantto hold to both fully fund and immunize your obligation?Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.b. What will be the par value of your holdings in the 20-year coupon bond?Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.a. 5 year bonda. 20 year bondb. Par value -millionmillionmilion

5-years bond:Coupon rate = 10%Duration = 4 years20-year bond:Coupon rate = 6%Duration = 11…

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 $1.3 million p year to beneficiaries. The yield to maturity on all bonds is 14.0%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 10.0 % (paid annually) is four years and the duration of 20-year-matur bonds with coupon rates of 5% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you wam to hold to both fully fund and immunize your obligation? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. b. What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. 5 year bond a 20 year bond b. Par value million million milion

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 $1.3 million p year to beneficiaries. The yield to maturity on all bonds is 14.0%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 10.0 % (paid annually) is four years and the duration of 20-year-matur bonds with coupon rates of 5% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you wam to hold to both fully fund and immunize your obligation? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. b. What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. 5 year bond a 20 year bond b. Par value million million milion

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

See similar textbooks

Similar questions

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 $1.9 million per year to beneficiaries. The yield to maturity on all bonds is 19.0%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 11.8% (paid annually) is four years and the duration of 20-year-maturity bonds with coupon rates of 7% (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? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. b. What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. 5 year bond a. 20 year bond b. Par…
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 $2.2 million per year to beneficiaries. The yield to maturity on all bonds is 14.4%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 10.5% (paid annually) is four years and the duration of 20-year-maturity bonds with coupon rates of 4% (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? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. b. What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. Answer is complete but not entirely…
Pension funds pay lifetime annuities to recipients. If a firm remains 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 $3.0 million per year to beneficiaries. The yield to maturity on all bonds is 20%. Required: a. If the duration of 5-year maturity bonds with coupon rates of 16% (paid annually) is 3.7 years and the duration of 20-year maturity bonds with coupon rates of 7% (paid annually) is 6.5 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 5 decimal places.) > Answer is complete but not entirely correct. Holdings 5-year bond 20-year bond $ 1.60000 million $ 22.20000 million b. What will be the par value of your holdings in the 20-year coupon bond? (Enter your answer in dollars not in…
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 million per year to beneficiaries. The yield to maturity on all bonds is 16%. Required: a. If the duration of 5-year-maturity bonds with coupon rates of 12% (paid annually) is four years and the duration of 20- year-maturity bonds with coupon rates of 6% (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? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place. b. What will be the par value of your holdings in the 20-year coupon bond? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. 5 year bond a. 20 year bond b. Par value $…
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 million per year to beneficiaries. the yield to maturity on all bonds is 15%. a. if the duration of 5-year maturity bonds with coupon rates of 11% (paid annually) is 4 years and the duration of 20-year maturity bonds with coupon rates of 7% (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?
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 $3.5 million per year to beneficiaries. The yield to maturity on all bonds is 17.5%. a. If the duration of 5-year maturity bonds with coupon rates of 14.8% (paid annually) is four years and the duration of 20-year maturity bonds with coupon rates of 8% (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.) 5-year bond 20-year bond million 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.) Par value million
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 million per year to beneficiaries. The yield to maturity on all bonds is 16%.a. If the duration of 5-year maturity bonds with coupon rates of 12% (paid annually) is four years and the duration of 20-year maturity bonds with coupon rates of 6% (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?b. What will be the par value of your holdings in the 20-year coupon bond?
You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $1.4 million per year. The interest rate is 8%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds.Required: a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position?
A pension fund faces a promised outflow of $5 million in 6 years. Its managers plan to dedicate a portfolio comprised of the following two bonds to meet this obligation. d. Suppose that it is now 3 years later and that there has been a parallel increase in interest rates of 2%. Explain how immunization at least partially protects this portfolio. That is, what are the sources of losses and gains associated with each of the bonds caused by the increase in interest rates? How do they offset each other?
You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $2.3 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds. Required: a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position?. Five-year Twenty-year Market Value Five-year Twenty-year million million b. What must be the face value of each of the two zeros to fund the plan? Face Value million million
You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $2.3 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds. Required: a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 1 decimal place.) Five-year Twenty-year Market Value million million b. What must be the face value of each of the two zeros to fund the plan? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Five-year Twenty-year Face Value million million
You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are going to closely resemble level perpetuities of $1.8 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds.Required: a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 1 decimal place.) Market Value Five-Year ___ Million Twenty-Five Year ___ Million b. What must be the face value of each of the two zeros to fund the plan? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Face Value Five-Year ___ Million Twenty-Five Year ___ Million