Required: A pension plan is obligated to make disbursements of $2.7 million, $3.7 million, and $2.7 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? (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 $2.7 million, $3.7 million, and $2.7 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? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Investment in one-year zero-coupon bonds Investment in perpetuity Portfolio % %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 20P

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Concept explainers

Characteristics of Bonds

Question

Required:
A pension plan is obligated to make disbursements of $2.7 million, $3.7
million, and $2.7 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? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
Investment in one-year zero-coupon bonds
Investment in perpetuity
Portfolio
do do
%
%

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