What must be the face value of two zeros to fund the plan

Assignment Help Financial Management
Reference no: EM131523931

You manage a pension fund that will provide retired workers with lifetime annuities. You determine that the payouts of the fund are essentially going to resemble level perpetuities of $0.8 million per year. The interest rate is 10%. You plan to fully fund the obligation using 5-year and 20-year maturity zero-coupon bonds. a. How much market value of each of the zeros will be necessary to fund the plan if you desire an immunized position? (Do not round intermediate calculations. Enter your answers in millions. Round your answers to 1 decimal place.) Market Value Five-year $ million Twenty-year $ million b. What must be the face value of the two zeros to fund the plan? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Face Value Five-year $ million Twenty-year $ million

Reference no: EM131523931

Questions Cloud

What is acorts equity cost of capital : Based on this information, estimate Acort's WACC. What is Acort's equity cost of capital?
Compute the price of the call : Using the? Black-Scholes formula, compute the price of the call.
Offer for contract and still create value for stockholders : What is the lowest possible per shovel price that Merton can offer for the contract and still create value for its stockholders?
Changing original investment to dollar gain or loss : changing "original investment" to "dollar gain or loss"
What must be the face value of two zeros to fund the plan : What must be the face value of the two zeros to fund the plan?
Calculate the one year total rate of return for three bonds : Calculate the one year total rate of return for the three bonds.
Calculate the annual return and expected return : What is the expected return of the 20-year bond. Calculate the annual return for the 30-year maturity bond over the next five years.
Beneficiary for her profit sharing plan : Robin died after suffering a heart attack. She did not have a named beneficiary for her profit sharing plan.
Trade-off between the higher interest rates : What does it mean when there is a trade-off between the higher interest rates in Thailand

Reviews

Write a Review

Financial Management Questions & Answers

  What is bonds price and annual yeld to maturity

fixed coupon bond , 20 years left until maturity , coupon rate 6% , yield of bond 6.2% , paid semi annual. What is bond's price? fixed coupon bond, 12 years left until maturity , coupon rate 7% , price of bond is $1060.00 , paid semi annually. What i..

  To meet this goal she deposit money into account

Maria Sanchez needs $9540 in three years to put a new roof on our house. To meet this goal she deposit money into an account today that pays 4.75% compounded monthly. Find the amount she must invest today to have $9540 in three years?

  How the market would set the yield to maturity

Blue Crab, Inc. plans to issue new bonds, but is uncertain how the market would set the yield to maturity. The bonds would be 29-year to maturity, carry a 8.02 percent annual coupon, and have a $1,000 par value. Blue Crab, Inc. has determined that th..

  What is the debt to total asset ratio

A firm has total assets of $1,920,000. It has $828,000 in long-term debt. The stockholders equity is $628,000. What is the debt to total asset ratio?

  Considering the purchase of bond due to mature

Suppose that an investor is considering the purchase of a bond due to mature in 30 years, carrying an 8 percent coupon rate (coupons are paid semi-annually). This security is available for purchase at a current market price of $975. The bond has a pa..

  Draw a diagram to show the variation in the investors profit

Under which circumstances does the investor make profit? When will the option be exercised?- Draw a diagram to show the variation in the investors profit and the share price at the maturity of the option.

  Estimate the expected inflation rate

A U.S. company can borrow 12,000 pounds in Great Britain for 4% interest, paying back 12,480 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 8% interest. Assuming capital..

  Movements in cross-exchange rates

Movements in Cross-Exchange Rates. Last year a dollar was equal to 7 Swedish kronor, and a Polish zloty was equal to $.40. Today, the dollar is equal to 8 Swedish kronor, and a Polish zloty is equal to $.44. By what percentage did the cross-exchange ..

  What is the current value of cars equity and debt

CAR Inc. will be liquidated in one year. The value of CAR’s assets is currently $650 million, and next year it will be either $825 million or $400 million. Before shareholders can be paid next year, CAR will have to repay $500 million of debt. What i..

  Using npv analysis and assuming that asset pool remains open

The Whilst Co. paid consultants $10,000 to conduct a feasibility study for a new project. The project’s estimated annual sales are $200,000 and costs are $102,300.  The company requires a 14% rate of return and is in the 34% marginal tax bracket. Usi..

  Accumulated savings and additional annual savings needed

How much money will they have accumulated 30 years from now? If their goal is to retire with $710,000 of savings, how much extra do they need to save every year

  What is the operating ratio and capacity ratio

What is the operating ratio? Capacity ratio?

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