Required: A pension plan is obligated to make disbursements of $1 million, $2 million, and $1 million at the end of each of the next three years, respectively. The annual interest rate is 10%. 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? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Investment in one-year zero-coupon bonds Investment in perpetuity Portfolio % %
Required: A pension plan is obligated to make disbursements of $1 million, $2 million, and $1 million at the end of each of the next three years, respectively. The annual interest rate is 10%. 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? Note: 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
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Required:
A pension plan is obligated to make disbursements of $1 million, $2 million, and $1 million at the end of each of the next three years,
respectively. The annual interest rate is 10%. 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?
Note: 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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