Check my work810pointsSkippedMy pension plan will pay me $12,500 once a year for a 10-year period. The first payment will come in exactly five years. Thepension fund wants to immunize its position.Required:a. What is the duration of its obligation to me? The current interest rate is 7.0% per year.b. If the plan uses 5-year and 20-year zero-coupon bonds to construct the immunized position, how much money ought to beplaced in each bond?c. What will be the face value of the holdings in each zero?eBookComplete this question by entering your answers in the tabs below.PrintRequired A Required BRequired CWhat is the duration of its obligation to me? The current interest rate is 7% per year.Note: Do not round intermediate calculations. Round your answer to 2 decimal places.ReferencesDurationyearsRequired ARequired B >

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EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 44P

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My pension plan will pay me $11,500 once a year for a 10-year period. The first payment will come in exactly five years. The pension fund wants to immunize its position. Required: a. What is the duration of its obligation to me? The current interest rate is 6.0% per year. b. If the plan uses 5-year and 20-year zero-coupon bonds to construct the immunized position, how much money ought to be placed in each bond? c. What will be the face value of the holdings in each zero? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the duration of its obligation to me? The current interest rate is 6% per year. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Duration years
My pension plan will pay me $11,500 once a year for a 10-year period. The first payment will come in exactly five years. The pension fund wants to immunize its position. Required: a. What is the duration of its obligation to me? The current interest rate is 6.0% per year. b. If the plan uses 5-year and 20-year zero-coupon bonds to construct the immunized position, how much money ought to be placed in each bond? c. What will be the face value of the holdings in each zero?
Consider a pension plan that will pay $10,000 once a year for a 5-year period (5 annual payments). The first payment will come in exactly 5 years (at the end of year 5) and the last payment in 9 years (at the end of year 9). a. What is the duration of the pension obligation? The current interest rate is 9% per year for all maturities. b. To generate the scheduled pension payments, the pension fund wants to invest the present value of the future payouts in bonds and match the duration of its obligation in part a). If the fund uses 5-year and 10-year zero-coupon bonds to construct its investment position, how much money (dollar amount) ought to be placed in each bond now? What should be the total face value (not current market value) of each zero coupon bond held? c. Right after the fund made its investment outlined in part b), market interest rates for all maturities dropped from 9% p.a.to 8% p.a. Show that the investment position constructed in part b) can still approximately fund the…
You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are (approximately) level perpetuities of $1 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year maturity and 20-year maturity zero-coupon bonds. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? 4 million for 5 year bond and 6 million of 20-year bond. 6 million for 5 year bond and 4 million of 20-year bond. O 6.67 million for 5 year bond and 3.33 million of 20-year bond. O 3.33 million for 5 year bond and 6.67 million of 20-year bond. Question 9 Using the same information from question 8, suppose that one year has passed, and the interest rate remains at 10%. What actions are required to rebalance the portfolio? O buy additional 0.67 million 5-year bond and sell 0.67 million 20-year bond. Sell 0.67 million 5-year bond, purchase additional 0.67 million…
You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the funds are going to closely resemble perpetuities of $1 million per year. The interest rate is 9% per year. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds. How much market value of each of the zero coupon bonds will be necessary to fund the plan if you desire an immunized position? Duration of a perpetuity is (1+y)/y
d) If the pension fund you manage expects to have an inflow of $200 million 12 months from now what forward contract would you seek to enter into to lock in current interest rates? 30
8) Special Retirement PlanYou set up a retirement plan where you will invest $20,000 per year in an account with a guaranteed rate of return of ? = 0.05. The plan requires that you start investing immediately at year t=0, and make fifteen (15) additional payments of $20,000 in years t=1, t=2, ..., t=10. You make 11 investments in total. a. What will be the value of this stream of investments in year t=50? b. What is the maximum you can withdraw per year over the twenty (20) year period from t=51, t=52, ..., t=70? You have to withdraw the same amount each year. c. What is the maximum that you can withdraw per year forever if you start to make withdrawals in year t=51. You have to withdraw the same amount each year. 19)
Assume that the Canada Pension Plan promises you $20,000 per year starting when you retire 45 years from today (the first $20,000 will come 45 years from now). If your discount rate is 7%, compounded annually, and you plan to live for 15 years after retiring (so that you will get a total of 16 payments, including the first one), what is the value today of Canada Pension Plan's promise? The value today of the Canada Pension Plan's promise is (Round to the nearest dollar.) View an example Get more help - CZA O Search + W e Clear all Incorrect: 0
Assume that the Canada Pension Plan promises you $70,000 per year starting when you retire 45 years from today (the first $70,000 will come 45 years from now). If your discount rate is 6%, compounded annually, and you plan to live for 15 years after retiring (so that you will get a total of 16 payments, including the first one), what is the value today of Canada Pension Plan's promise? The value today of the Canada Pension Plan's promise is $ (Round to the nearest dollar.)
Suppose you are given a choice of the following two securities: (a) an annuity that pays $10,000 at the end of each of the next six years; or (b) a perpetuity that pays $10,000 forever, but the first cash payment is 11 years from today. Which security do you choose if the annual interest rate is 5%? Does your answer change if the interest rate is 10%? Explain why or why not.
Suppose that a life insurance company has guaranteed a payment of $14 million to a pension fund 4.5 years fromfund and can invest the entire premium for 4.5 years at an annual interest rate of 6.25%, how much will the life in$13.7 million$17.8 million$18.4 million$14.1 million
A pension fund must pay out $1 million next year, $2 million the following year, and then $3 million the year after that. If the discount rate is 8%, what is the duration of this set of payments?

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