Question A company owes 500 and 1000 to be paid at the end of year one and year four, respectively. The company will set up an investment program to match the duration and the present value of the above obligation using an annual effective interest rate of 10%. The investment program produces asset cash flows of X today and Y in three years. Calculate X and determine whether the investment program satisfies the conditions for Redington immunization. Possible Answers A B C D X = 75 and the Redington immunization conditions are not satisfied. X = 75 and the Redington immunization conditions are satisfied. X = 1138 and the Redington immunization conditions are not satisfied. X = 1138 and the Redington immunization conditions are satisfied. E X = 1414 and the Redington immunization conditions are satisfied.
Question A company owes 500 and 1000 to be paid at the end of year one and year four, respectively. The company will set up an investment program to match the duration and the present value of the above obligation using an annual effective interest rate of 10%. The investment program produces asset cash flows of X today and Y in three years. Calculate X and determine whether the investment program satisfies the conditions for Redington immunization. Possible Answers A B C D X = 75 and the Redington immunization conditions are not satisfied. X = 75 and the Redington immunization conditions are satisfied. X = 1138 and the Redington immunization conditions are not satisfied. X = 1138 and the Redington immunization conditions are satisfied. E X = 1414 and the Redington immunization conditions are satisfied.
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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Transcribed Image Text:Question
A company owes 500 and 1000 to be paid at the end of year one and year four,
respectively. The company will set up an investment program to match the duration and
the present value of the above obligation using an annual effective interest rate of 10%.
The investment program produces asset cash flows of X today and Y in three years.
Calculate X and determine whether the investment program satisfies the conditions for
Redington immunization.
Possible Answers
A
B
C
D
X = 75 and the Redington immunization conditions are not satisfied.
X =
75 and the Redington immunization conditions are satisfied.
X = 1138 and the Redington immunization conditions are not satisfied.
X = 1138 and the Redington immunization conditions are satisfied.
E
X = 1414 and the Redington immunization conditions are satisfied.
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