You are managing NYU's pension fund. In a perhaps irrational decision, the Math Department has chosen to run a separate pension with an unusual pi-themed distribution of payments. Your fund's liabilities for this Pi-Pension are: Year Cash Flow 1 $3M 2 $1M 3 $4M 4 $1M 5 $5M By coincidence, yields at all maturities are currently equal to the mathematical constant tau (defined as two times pi), meaning that all yields and spot rates are equal to 6.28%. You are very happy that you immunized the portfolio since over the next year yields decrease by 1% (to 5.28%) at all horizons. Compute the holding period return on your 5-year zero-coupon bonds over this one-year horizon.
You are managing NYU's pension fund. In a perhaps irrational decision, the Math Department has chosen to run a separate pension with an unusual pi-themed distribution of payments. Your fund's liabilities for this Pi-Pension are: Year Cash Flow 1 $3M 2 $1M 3 $4M 4 $1M 5 $5M By coincidence, yields at all maturities are currently equal to the mathematical constant tau (defined as two times pi), meaning that all yields and spot rates are equal to 6.28%. You are very happy that you immunized the portfolio since over the next year yields decrease by 1% (to 5.28%) at all horizons. Compute the holding period return on your 5-year zero-coupon bonds over this one-year horizon.
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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You are managing NYU's pension fund. In a perhaps irrational decision, the Math Department has chosen to run a separate pension with an unusual pi-themed distribution of payments. Your fund's liabilities for this Pi-Pension are:
| Year | Cash Flow |
| 1 | $3M |
| 2 | $1M |
| 3 | $4M |
| 4 | $1M |
| 5 | $5M |
By coincidence, yields at all maturities are currently equal to the mathematical constant tau (defined as two times pi), meaning that all yields and spot rates are equal to 6.28%.
You are very happy that you immunized the portfolio since over the next year yields decrease by 1% (to 5.28%) at all horizons. Compute the holding period return on your 5-year zero-coupon bonds over this one-year horizon.
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