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Sonja [21]
3 years ago
6

A pension fund has an average duration of its liabilities equal to 17 years. The fund is looking at 4-year maturity zero-coupon

bonds and 4% yield perpetuities to immunize its interest rate risk. How much of its portfolio should it allocate to the zero-coupon bonds to immunize if there are no other assets funding the plan
Business
1 answer:
Dmitry [639]3 years ago
8 0

Answer:

40.91%

Explanation:

Duration perpetuity = 1.04/4%

Duration perpetuity = 1.04/0.04

Duration perpetuity = 26 years

Now, 17 = (Wz)*4 + (1 - Wz)*26

17 = 4Wz + 26 - 26Wz

26Wz - 4Wz = 26 - 17

22Wz = 9

Wz = 9/22

Wz = 0.409091

Wz = 40.91%

So, 40.91% of its portfolio should be allocated to the zero-coupon bonds to immunize, if there are no other assets funding the plan.

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Tim and Sandy have a ten-year-old daughter. During the current year, they spent $2,000 on childcare expenses at a daycare center
konstantin123 [22]

Answer:

$3000

Explanation:

In the United states, eligible child care expenses per dependent are limited to $3000. Since Tim and Sandy have only One 10 year old daughter which fall under the age 13 bracket for dependents gives them a maximum limits of $3000. It is important to note that of a couple has two or more child (dependents) they are eligible to $6000. A relative who is a care giver qualifies if expenses are paid to the relative on conditions that the relative isn't a dependent non child of the couple.

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4 years ago
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Suppose a local hardware store has explicit costs of $2 million per year and implicit costs of $44,000 per year. If the store ea
Korolek [52]

Answer: $94,000

Explanation:

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4 years ago
HELP!!
leonid [27]
In monopolistic competition prices are usually higher than in perfect competition.
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3 years ago
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Assuming that the term structure of interest rates is determined as posited by the pure expectations theory, which of the follow
Sidana [21]

Answer:

c. The maturity risk premium is assumed to be zero.

Explanation:

In the case when the term structure of the rate of interest would be measured via the pure expectations theory so here the maturity risk premium would be zero as under this theory it is assumed that the risk premium i.e. of the long term would be equivalent to the zero

Therefore the option c is correct

And, the rest of the options seems wrong

8 0
3 years ago
g You want to save sufficient funds to generate an annual cash flow of $50,000 a year for 20 years as retirement income. You cur
Nonamiya [84]

Answer:

You need to save $4,012.45 each year

Explanation:

Pertiuty in 20 years  is $50,000.

So the amount must be in account after 30 years saving to enough for above pertiuty is calculated as below:

= $50000/(1+8%)+ $50000/(1+8%)^2+......+$50000/(1+8%)^20

= $50,000 * Annuity Factor ( 1-20 years) of 8%

=$50000*9.818

= $490,907

To have $490,907 (FV) in account after 30 years (tenor), now you have save an amount each year (PMT) calculated as below:

$490,907 = PMT*(1+8%)^30+....PMT*(1+8%)^2 + PMT*(1+8%)

= PMT * Discount Factor ( 1-30 years) of 8%

$490,907 = PMT * 122.346

-> PMT = $490,907/ 122.346

= $4,012.45

5 0
4 years ago
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