An insurance company has liabilities of £15 million due in 11 years' time and £6 million due in 15 years' time. The assets of the company consist of two zero-coupon bonds, one paying million in 7 years' time and the other paying million in 19 years' time. The current interest rate is 7% per annum effective. Find the nominal value of Y (i.e. the amount, IN MILLIONS, that bond Y pays in 19 year's time) such that the first two conditions for Redington’s theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.
An insurance company has liabilities of £15 million due in 11 years' time and £6 million due in 15 years' time. The assets of the company consist of two zero-coupon bonds, one paying million in 7 years' time and the other paying million in 19 years' time. The current interest rate is 7% per annum effective. Find the nominal value of Y (i.e. the amount, IN MILLIONS, that bond Y pays in 19 year's time) such that the first two conditions for Redington’s theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
An insurance company has liabilities of £15 million due in 11 years' time and £6 million due in 15 years' time.
The assets of the company consist of two zero-coupon bonds, one paying million in 7 years' time and the other paying million in 19 years' time.
The current interest rate is 7% per annum effective.
Find the nominal value of Y (i.e. the amount, IN MILLIONS, that bond Y pays in 19 year's time) such that the first two conditions for Redington’s theory of immunisation are satisfied.
Express your answer to THREE DECIMAL PLACES.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education