A pension fund has a liability of £65000 to be paid precisely in 4 years time. It wants to Reddington immunise this liability with P 3-year zero coupon bonds and Q 5-year zero coupon bonds, where P and Q are to be determined. Interest is compounded continuously with rate 2%.

Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
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Write down the two equations that P and Q need to satisfy for Reddington immunisation and solve these equations for P and Q.

(Write down the answer to the nearest pound.)

A pension fund has a liability of £65000 to be paid precisely in 4 years time. It wants to Reddington immunise this
liability with P 3-year zero coupon bonds and Q 5-year zero coupon bonds, where P and Q are to be
determined. Interest is compounded continuously with rate 2%.
Transcribed Image Text:A pension fund has a liability of £65000 to be paid precisely in 4 years time. It wants to Reddington immunise this liability with P 3-year zero coupon bonds and Q 5-year zero coupon bonds, where P and Q are to be determined. Interest is compounded continuously with rate 2%.
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