Problem 11-11 (Algo) Required: A pension plan is obligated to make disbursements of $2.6 million, $3.6 million, and $2.6 million at the end of each of the next three years, respectively. The annual interest rate is 7%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Investment in one-year zero-coupon bonds Investment in perpetuity Portfolio % %

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
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Problem 11-11 (Algo)
Required:
A pension plan is obligated to make disbursements of $2.6 million, $3.6 million, and $2.6 million at the end of each of the next three
years, respectively. The annual interest rate is 7%. If the plan wants to fully fund and immunize its position, how much of its portfolio
should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Do
not round intermediate calculations. Round your answers to 2 decimal places.)
Investment in one-year zero-coupon bonds
Investment in perpetuity
Portfolio
%
%
Transcribed Image Text:Problem 11-11 (Algo) Required: A pension plan is obligated to make disbursements of $2.6 million, $3.6 million, and $2.6 million at the end of each of the next three years, respectively. The annual interest rate is 7%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Investment in one-year zero-coupon bonds Investment in perpetuity Portfolio % %
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