You Answered Correct Answer A life insurance company expects to pay the beneficiary of a policy $3,000,000 in 15 years from today. Suppose the manager of the insurance company wants to immunize her firm against interest rate risk and has two assets available as investments. The assets' information is below: Bond Bond A Bond B Time-to- Maturity 20 years 30 years 694 bonds 345 bonds 714 bonds O144 bonds Coupon Rate Yield 290 bonds 10% 4% 6% 6% How many of Bond A should the insurance company purchase to immunize against interest rate risk? Price $1,458.80 $724.70 Duration 11.03 years 15.80 years
You Answered Correct Answer A life insurance company expects to pay the beneficiary of a policy $3,000,000 in 15 years from today. Suppose the manager of the insurance company wants to immunize her firm against interest rate risk and has two assets available as investments. The assets' information is below: Bond Bond A Bond B Time-to- Maturity 20 years 30 years 694 bonds 345 bonds 714 bonds O144 bonds Coupon Rate Yield 290 bonds 10% 4% 6% 6% How many of Bond A should the insurance company purchase to immunize against interest rate risk? Price $1,458.80 $724.70 Duration 11.03 years 15.80 years
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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Correct Answer
A life insurance company expects to pay the beneficiary of a policy $3,000,000 in 15
years from today. Suppose the manager of the insurance company wants to immunize
her firm against interest rate risk and has two assets available as investments. The
assets' information is below:
Bond
Bond A
Bond B
Time-to-
Maturity
20 years
30 years
694 bonds
345 bonds
O714 bonds
144 bonds
Coupon Rate Yield
290 bonds
10%
4%
6%
6%
How many of Bond should the insurance company purchase to immunize against
interest rate risk?
Price
$1,458.80
$724.70
Duration
11.03 years
15.80 years
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