A pension plan is obligated to make disbursements

Assignment Help Financial Management
Reference no: EM13876212

a) A pension plan is obligated to make disbursements of $1 million, $2 million, $5 million and $1 million at the end of each of the next four years, respectively. Find the duration of the plan’s obligations if interest rates are flat at 10% annually.

b) If the plan in the previous question wants to fully fund and immunise its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan?

Reference no: EM13876212

Questions Cloud

What is present value today of four years of college costs : You figure that the total cost of college will be $100,000 per year 18 years from today. If your discount rate is 8% compounded annually, what is the present value today of four (4) years of college costs starting 18 years from today?
What does this economic analysis suggest concerning : 1. What does this economic analysis suggest concerning government policy on ?sheries management? Should such policies be based on the maximum sustainable yield concept?
Requires making three annual payments : You have a loan outstanding; it requires making three annual payments of $1000 each at the end of the next three years. Your bank has offered to allow you to skip making the next two payments in lieu of making one large payment at the end of the loan..
An area along the coast off southern california : 1. [Lecture 10-27 Discounting] Oil production has been proposed for an area along the coast off Southern California. Oil production would jeopardize the use of beaches along 10 miles of coast which are a major venue for surfing, bathing and other bea..
A pension plan is obligated to make disbursements : A pension plan is obligated to make disbursements of $1 million, $2 million, $5 million and $1 million at the end of each of the next four years, respectively. Find the duration of the plan’s obligations if interest rates are flat at 10% annually
Calculate the dollar amount of the total direct labor : Davenport Construction Associates compares actual results with a flexible budget.
Estimate the cost of capital for the division : In the face of disappointing earnings results and increasingly assertive institutional stockholders, Eastman Kodak considered a major restructuring in 1993.  Estimate the (after-tax) cost of capital (WACC) for the division. Estimate the value of the ..
How might additional births affect the family system : What changes can the father anticipate after the baby arrives and Does the arrival of a new baby cause significant marital strain?
Constant marginal product : A3-4.) Suppose the total product (output) of a firm is given by TP = 4 + 2L (for L > 0). The firm experiences decreasing then constant marginal product (MP) as it increases labour.

Reviews

Write a Review

 

Financial Management Questions & Answers

  Suppose that the index model for stocks

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 1.6% + 0.70RM + eA RB = –1.8% + 0.9RM + eB σM = 22%; R-squareA = 0.20; R-square B = 0.15

  Advantages to buying mutual funds over individual stocks

Explain mutual funds. Explain three advantages to buying mutual funds over individual stocks. Please explain the difference between an actively traded fund vs. and indexed fund.

  Grow by maintaining a constant mix of debt and equity

The estimate of how quickly a firm may grow by maintaining a constant mix of debt and equity is called:

  What interest rate is the mortgage company charging you

A mortgage company offers to lend you $85,000; the loan calls for payments of $7,779.44 at the end of each year for 30 years. What interest rate is the mortgage company charging you?

  What is the firms weighted average cost of capital

Phillips Equipment has 75,000 bonds outstanding that are selling at par. Bonds with similar characteristics are yielding 7.5 percent. The company also has 750,000 shares of 6 percent preferred stock and 2.5 million shares of common stock outstanding...

  Estimate the effective annual rate for continuously compound

Please provide the steps to solving this problem using a financial calculator as well as reasonings for certain steps if needed: Estimate the effective annual rate (EAR) for a continuously compounded annual nominal rate of 8.75%.

  A price to book ratio considers

A price to book ratio considers

  What is the after-tax cash flow from this sale

Deer and Doe purchased $100,000 of equipment six years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $24,500. What is the after-tax cash flow from this sale if the tax rate is 35 percent?

  Analyzing two machines

DeCento's is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 12 percent rate of return and uses straight-line depreciation to a ze..

  What measure of dispersion to measure risk exposure

How we measure risk is related to our perspective. The president of the company would look at the correlation between projects which is measured by the correlation coefficient. The shareholder would measure risk by looking at Beta. While the project ..

  Mortgage plan problem

You are financing a 300K home with 20% down payment. The 30-year interest rate (APR) is 4.5%, and the 15-year interest rate (APR) is 3.5%. What is the difference in the monthly payment if choose 30- year and 15-year mortgage plan?

  Explain the expected rate of return for each investment

Johnson Manufacturing, Inc. is considering several investments. The rate on Treasury bills is currently 7.5% and the expected return for the market is 13%. What should be the expected rate of return for each investment (using the CAPM)?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd