My pension plan will pay me $10,500 once a year for a 10-year period. The first payment will come in exactly five years. The pensionfund wants to immunize its position.Required:a. What is the duration of its obligation to me? The current interest rate is 5.0% 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 placedin 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 CWhat is the duration of its obligation to me? The current interest rate is 5% per year.Note: Do not round intermediate calculations. Round your answer to 2 decimal places.Durationyears

a. Duration of the ObligationThe duration of the pension plan's obligation to you, given the current…

Answered: My pension plan will pay me $10,500…

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

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Similar questions

You manage an investment fund that sells annuities. You sell a 6-year ordinary level annuity that makes monthly payments of $2,115 per month, starting next month. If interest rates are 3.46% APR (compounded monthly) what is the current price of this annuity?
A borrower can obtain an 80% loan with an 8% interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 90% loan at an 8.5% rate with the same loan term. The borrower plans to own the property for the entire loan term. solve with finanical calucltor What is the incremental cost of borrowing the additional funds? How would your answer change if 2 points were charged on the 90% loan? Would your answer to part (b) change if the borrower planned to own the property for only 5 years?
In the compound interest example on P.344. Calculate S20 and T240. Which is the better investment after 20 years?
A borrower can obtain an 80 percent loan with an 9 percent interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 95 percent loan at an 9.5 percent rate with the same loan term. The borrower plans to own the property for the entire loan term. Required: a. What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of the loan does not affect the answer.) b. What is the incremental cost of borrowing the additional funds if 2 points were charged on the 95 percent loan? c. What is the incremental cost of borrowing the additional funds if the borrower planned to own the property for only five years? Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the incremental cost of borrowing the additional funds if the borrower planned to own the years? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Incremental…
You are saving up for a down payment on a house. You will deposit P600 a month for the next 24 months in a money market fund. How much will you have for your down payment in 24 months if the fund earns 10% annual percentage rate compounded monthly? * 14,480 15,870 12,930 10,560 9,890 What's the future value of P1,200 after 5 years if the appropriate interest rate is 6%, compounded monthly? * 1,537.69 1,618.62 1,699.55 1,784.53 1,873.76 What is the present value of the following cash flow stream at a rate of 6.25%? YEAR O=0 YEAR 1= P75 YEAR 2= P225 YEAR 3=PO YEAR 4=P300 * 411.57 433.23 456.03 480.03 505.30
You are offered a $2,800,000 retirement package to be given in $100,000 payments at the end of each of the next 28 years. You are also given the option of accepting a $1,150,000 lump sum payment now. Interest rates are at 8.5% over the next 28 years. Which is a better option? the offered annual payments of $100,000the lump sum of $1,150,000 they are the samecannot be determined
a) GCB has offered to grant you GHC50,000 loan with an annual interest of 24% compounded monthly to buy a house. What would be the monthly payment on the loan if the mortgage would be fully amortized in 20 years? b) Find the future and present value of a 5 year GHC1,000.00 annuity if the rate of interest is 12% and the first monthly payment is made now. c) Dividend of a share is forecasted to grow -6% next year, grow super-normally at 30% the next 3 years, and at a constant rate of 7.5% thereafter. What is the value of the stock in question if dividend paid this year is GHC4.50/share and the required return is 13%. d) Calculate the value of a 10-year, 10% $1,000.00 semi-annual coupon bond if the prevailing market interest rate is 8%.
An investment offers $966 per year for 11 years, with the first payment occurring Zyears from now. If the required return is 9 percent, what is the value of the investment? (HINT: Remember that when you calculate the PV of the annuity, the claculator gives you the present value of the annuity 1 period before the annuity starts. So if the annuity starts in year 7, that calculator will to give you the persent value of annuity in year 6. Now you have to bring this number to period O by inputting: N=6 (1 period before the annuity starts, in your case it would be a different number depending when your annuity starts) R=9 FV=Present value of annuity you found in step 1. And you solve for PV)
You build a retirement fund by continuously paying into the fund for 30 years, at a rate of 5,000 per year at an effective annual interest rate of 9%. After 30 years, you buy a 30-year annuity immediate with your fund at an effective annual interest rate of 8%. The annuity pays P after one year, and payments increase by 5% thereafter. Find P
You want to buy an ordinary annuity that pays you $4000 annually for the next 20 years. The annual interest rate is expected to be 8% over this 20-year period. The price you would be willing to pay for the annuity is: $32000. $39272. $40000. $80000.
Your retirement policy lets you receive in 35 years equal annual payments of $10,000 for 10 years. The relevant interest rate is 6%. What is its PV? (Hint: this is a two step problem; find what the value of the retirement annuity will be 35 years from now and THEN find the present value of that sum in today’s dollars.
assume that you can attribute 200 per month to a retirement plan for 20 years then you are able to incvrease the contributiom to 300 per month for another 20 years . given a 6.0 percent interest rate what is the value of your retirement plan after 40 years.

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