Portfolio investment in one-year zero-coupon bonds

Assignment Help Financial Management
Reference no: EM132014713

A pension plan is obligated to make disbursements of $1.2 million, $2.2 million, and $1.2 million at the end of each of the next three years, respectively. The annual interest rate is 10%. If the plan wants to fully fund and immunize 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? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Portfolio Investment in one-year zero-coupon bonds %:

Investment in perpetuity %:

Reference no: EM132014713


Write a Review


Financial Management Questions & Answers

  Firm has four open positions on its board of directors

A firm has four open positions on its board of directors. How many shares do you need to own to guarantee your own election to the board if the firm has 387,500 shares of stock outstanding and uses cumulative voting? Each share is granted one vote.

  Shares outstanding-estimate price per share of common stock

ABC Waterhouse's free cash flow next year will be $250 million and it is widely expected to grow at a 5 percent annual rate indefinitely. The company's weighted average cost of capital is 11 percent, the market value of its liabilities is $2.5 billio..

  The order came in the right after the first of the year

The order came in the right after the first of the year, lowering your planned revenue numbers and the bonuses of your very deserving employees. It doesn't seem fair. What should you do?

  What is its yield to maturity-bond current market price

A bond has a $3,000 par value, 20 years to maturity and sells for $2,500. What is its yield to maturity? What is the bond's current market price?

  Effective annual rate is firm paying for its funds

A firm issues nine-month commercial paper with a $50,000 face value and receives $45,000. What effective annual rate is firm paying for its funds?

  Asset moves generally in the opposite direction of an index

If an asset moves generally in the opposite direction of an index then

  What is the cost preferred stock financing

The preferred stock of gator industries sells for $35.66 and pays $2.74 per year in dividends. What is the cost preferred stock financing? How should this cost be incorporated into the NPV of the project being financed?

  New level of receivables investment

When converting annual data to daily data or vice versa in these problems, assume there are 365 days per year. Suppose that, as the result of a recession, annual credit sales decline by 10 percent to $18 million, and customers delay their payments to..

  What are the conditions imposed on a debt issues

What are the conditions imposed on a debt issues that are designed to protect bondholders called? collatreal agreements, default provisions, protective covenants or vanilla wrapper

  Explain the consolidated ?nancial statements of bgi

Describe the various circumstances under which May & Marty could take responsibility for the work of Dey & Dee and make no reference to Dey & Dee's examination of BGI-Western in its own report on the consolidated ?nancial statements of BGI.

  Suppose baa-rated bonds currently yield

Suppose Baa-rated bonds currently yield 7.1%, while Aa-rated bonds yield 5.1%. Now suppose that due to an increase in the expected inflation rate, the yields on both bonds increase by 1.0%. What would happen to the confidence index?

  Difference between selling forward contract for delivery

Explain the difference between selling a forward contract for delivery at $100 in one year, buying a put option struck at $100 expiring in one year, and selling a call option struck at $100 expiring in one year.

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