A pension plan is obligated to make disbursements of $2.5 million, $3.5 million, and $2.5 million at the end of each of the next
three years, respectively. The annual interest rate is 8%. 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? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
1 answer:
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Answer:
tractor 35,127,42 debit
note payable 32,172.42 credit
cash 3,000 credit
--to record issuance--
Note payale end of 2018
39,584.19
note payables at Dec 31th
Note payable at the end of 2019
39,584.19
note payables at Dec 31th
Explanation:
As the note has zero.interest we discount the note to get the present value:
Maturity $44,000.0000
time 3.00
rate 0.11
PV 32,172.42
The difference will be a discount that will acrrue interest overtime.
the truck will enter the accounting net of interest charges thus:
3,000 downpayment + 32,127.42 = 35,127.42
interest will be: 32,127.42 x 1.11 = 32,127.41
<u><em>Then, do the same for 2019</em></u>
(32,127.41 + 3,532.0162) x 1.11 = 39,584.19