Why some firms go for buying products and not make it in-house. Introduction: The decision of make-or-buy: A company has to decide whether it has to make a component or it has to buy a component from sources external to it.

Question

An insurance company has liabilities of £7 million due in 10 years' time and £9 million due in 17 years' time. The assets of the company consist of two zero-coupon bonds, one paying £X million in 7 years' time and the other paying £Y million in 20 years' time. The current interest rate is 6% per annum effective. Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays in 7 year's time) such that the first two conditions for Redington's theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.

Answer 1

Question

Chapter 15.2, Problem 3QS2

Summary Introduction

To Determine:

Why some firms go for buying products and not make it in-house.

Introduction:

The decision of make-or-buy: A company has to decide whether it has to make a component or it has to buy a component from sources external to it.

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