You manage a pension fund that will provide retired workers with lifetime annuities. You expect a large number of workers to retire in 8 years. You have the following two bonds to invest in and immunize this portfolio. Inputs Bond A Bond B Settlement date 01-01-2020 01-01-2020 Maturity date 01-01-2025 01-01-2040 Coupon rate 0.025 0.0000 Face Value $1,000.00 $1,000.00 Coupons per year 1 1 Obligation Time to Payout 8 Payout $50,000,000 Initial Yield to Maturity 0.0750 Required: Using any necessary data above, calculate the Present value and Macaulay Duration of the obligation. Assume annual payments. Then calculate the Macaulay Duration and the Modified Duration for each bond. Use this information to immunize the portfolio. Then, re-immunize the portfolio 1 year later using the new yield.
You manage a pension fund that will provide retired workers with lifetime annuities. You expect a large number of workers to retire in 8 years. You have the following two bonds to invest in and immunize this portfolio. Inputs Bond A Bond B Settlement date 01-01-2020 01-01-2020 Maturity date 01-01-2025 01-01-2040 Coupon rate 0.025 0.0000 Face Value $1,000.00 $1,000.00 Coupons per year 1 1 Obligation Time to Payout 8 Payout $50,000,000 Initial Yield to Maturity 0.0750 Required: Using any necessary data above, calculate the Present value and Macaulay Duration of the obligation. Assume annual payments. Then calculate the Macaulay Duration and the Modified Duration for each bond. Use this information to immunize the portfolio. Then, re-immunize the portfolio 1 year later using the new yield.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
ChapterM: Time Value Of Money Module
Section: Chapter Questions
Problem 11E
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Question
| You manage a pension fund that will provide retired workers with lifetime |
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| Inputs | Bond A | Bond B | |||
| Settlement date | 01-01-2020 | 01-01-2020 | |||
| Maturity date | 01-01-2025 | 01-01-2040 | |||
| Coupon rate | 0.025 | 0.0000 | |||
| Face Value | $1,000.00 | $1,000.00 | |||
| Coupons per year | 1 | 1 | |||
| Obligation | |||||
| Time to Payout | 8 | ||||
| Payout | $50,000,000 | ||||
| Initial Yield to Maturity | |||||
| 0.0750 | |||||
| Required: | |||||
| Using any necessary data above, calculate the |
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