User Account

All Pages

What is the duration of the funds 20-year payout obligation

Assignment Help Finance Basics
Reference no: EM131389389

You manage a pension fund, which provides retired workers with lifetime annuities. The fund must pay out $1 million per year to cover these annuities. Assume for simplicity that these payments continue for 20 years and then cease. The interest rate is 4% (flat term structure). You plan to cover this obligation by investing in 5- and 20-year maturity Treasury strips.

(a) What is the duration of the funds 20-year payout obligation?

(b) You decide to minimize the funds exposure to changes in interest rates. How much should you invest in the 5- and 20- year strips? What will be the par value of your holdings of each strip?

(c) After three months, you reexamine the pension funds investment strategy. Interest rates have increased. You still want to minimize exposure to interest rate risk. Will you invest more in 20-year strips and less in 5-year strips? Explain briefly.

Reference no: EM131389389

Questions Cloud

Did a partnership exist in given contention : Upon the sale of the house and lot, Bird was to have his money first. Clark was then to have the agreed value of the lot, and the profits were to be equally divided. Did a partnership exist?
How many shares of common stock are outstanding : How many shares of common stock are outstanding? Assuming there is a stated value, what is the stated value of the common stock? What is the par value of the preferred stock?
Market purchase by fed will affect the money supply : Describe how and open market purchase by the Fed will affect the money supply of $7 million will affect the money supply. Assuming a required reserve rate of 5%, what is the maximum amount by which the money supply can change due to open market opera..
Can grant and arthur compel david to account for the profits : After David had accumulated a large sum of money, Grant and Arthur demanded their share, but David refused to make any split. Can Grant and Arthur compel David to account for the profits of the partnership? Why?
What is the duration of the funds 20-year payout obligation : After three months, you reexamine the pension funds investment strategy. Interest rates have increased. You still want to minimize exposure to interest rate risk. Will you invest more in 20-year strips and less in 5-year strips? Explain briefly.
How job costing handles direct and indirect costs : Discuss the advantages and benefits of job costing. Explain how job costing works. Include how job costing handles direct and indirect costs?
How human resources functions in healthcare organizations : Discuss how human resources functions in healthcare organizations benefit healthcare organizations and the individuals they employ.Analyze the role human resource management plays in employee advancement and training in healthcare organizations.Exa..
Marketing research assessment paper : In a well-written paper, discuss your experience using SurveyMonkey. What claims does the company make for its service? How much would it cost if you wished to use it for longer surveys and more respondents? Do you know of comparable services? Dis..
To what is smith entitled with respect to partnership profit : To what is Smith entitled with respect to partnership profits, inspection of partnership books, an account of partnership transactions, and participation in the partnership management?

Reviews

Write a Review

Finance Basics Questions & Answers

  Rossdale inc had additions to retained earnings for the

rossdale inc. had additions to retained earnings for the year just ended 575000. the firm paid out 140000 in cash

  What impact does a raw material purchase of 85k on open ac

What impact does a raw material purchase of 85k on open account have on current and/or the acid-test ratios.

  Monthly mortgage payment

Compute the monthly mortgage payment made at the beginning of each month on a $100,000 mortgage.

  Calculate the next annual dividend amount

Company XYZ is currently trading at $97.00 a share. The expected growth rate is 4% and the required return rate is 7.8%. Calculate the next annual dividend amount using the Constant Dividend Growth Model.

  Discuss the differences in the two corporations

Discuss the differences in the two corporations in approximately 75 words. Your answer can be completed below your spreadsheet analysis.

  Star jet ltds ordinary shares have a beta of 13 if the

star jet ltds ordinary shares have a beta of 1.3. if the risk-free rate is 5 and the expected return on the market is

  How much in dividends were paid to shareholders during year

How much in dividends were paid to shareholders during the year? Assume that all dividends declared were actually paid.

  What your marginal federal tax rate

What your marginal federal tax rate? (What percent of your next dollar earned is lost via taxes?)

  Sales presentation for the business

"Design a short sales presentation for the business you defined for your franchise opportunity analysis. This should be no more than four slides."

  Explain the law of one price and the theory of purchasing

1 if the brazilian demand for american exports rises at the same time that u.s. productivity rises relative to

  Which is the best example of a financial metric

Which of the following is the BEST example of a financial metric?

  How much interest is paid over the life of the loan

Determine the outstanding principal balance on the loan in Problem 11 after 120 payments have been made.In Problem 11, determine the monthly payment for a thirty-year real estate loan with an annual percentage rate of 8.5% and an initial principal of..

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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