PRINCIPLES OF MANAGERIAL FINANCE (SUBSCR
PRINCIPLES OF MANAGERIAL FINANCE (SUBSCR
15th Edition
ISBN: 9780137695621
Author: SMART
Publisher: PEARSON C
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Chapter 18.4, Problem 18.12RQ
Summary Introduction

To discuss: The three types of business failure.

Introduction:

Some business may fail within first or two years or it may grow, earn profit and later gets failed. There are various ways the business may get failed and it is an unfortunate conditions.

Summary Introduction

To discuss: The difference between the insolvency and bankrupt.

Summary Introduction

To discuss: The cause of business failure.

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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.
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