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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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<h3><u>Explanation</u>:</h3>

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4 years ago
The bond that you own does not pay any interest.​ Instead, it is sold at a​ "discount" from its maturity value. This is a​ _____
Rzqust [24]

Answer:

The correct anwer is zero coupon.

Explanation:

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3 years ago
What are the typical fees banks charge?
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What are the typical fees banks charge?
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he Glowing company could produce an operating cash flow of $56,200 a year for 5 years. The initial fixed asset investment in the
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Answer:

-$18,375

Explanation:

The computation of the net present value is shown below;

In the case when the operating cash flow is $56,200 for 5 years and the rate of return is 15.2% so the present value is $187,502 by using the financial calculator

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