Solution-What will be the par value of your holdings

What will be the par value of your holdings

Assignment Help Finance Basics

Reference no: EM132494769

Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $2.4 million per year to beneficiaries. The yield to maturity on all bonds is 16%.

a. If the duration of 5-year maturity bonds with coupon rates of 12% (paid annually) is 4.0 years and the duration of 20-year maturity bonds with coupon rates of 8% (paid annually) is 7.5 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation? (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.)

5-year bond

$1.1million

20-year bond

$13.9million

b. What will be the par value of your holdings in the 20-year coupon bond? (Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Reference no: EM132494769

Questions Cloud

Calculate pv cost of lease alternative : Calculate PV cost of borrowing/ purchase alternative. (Do not round the intermediate calculations. Round the final answer to nearest whole dollar.)

Record depreciation expense on the equipment for year eight : Record depreciation expense on the equipment for year 8 by the straight-line method. Assume that Alpha Communications paid $126,000

Determining the annual dividend-stana inc : Stana, Inc., has preferred stock outstanding that sells for $103.57 per share. If the required return is 4.17 percent, what is the annual dividend?

What fixed vs variable costs for a healthcare organization : Explain the difference between fixed and variable costs for a healthcare organization. Provide and discuss at least one example of a fixed cost in health care

What will be the par value of your holdings : What will be the par value of your holdings in the 20-year coupon bond?

Calculate the present value of total outflows : Calculate the present value of total outflows. (Do not round intermediate calculations. Enter the answers in whole dollars, not in millions)

Develop a basic flocking simulation : Algorithms and Data Structures - develop abstract data types - Implement common data structures and algorithms - develop a basic flocking simulation

What is an appropriate cost of capital for division : What is an appropriate cost of capital for division A if the market risk premium is 9.5 percent? Miller Sisters has an overall beta of 0.79 and a cost of equity

Solve basic and diluted earnings per share : Calculate basic and diluted earnings per share for 2020. Show all calculations for possible part marks. Arrange your answer as per the method used.

User Account

All Pages

What will be the par value of your holdings

Reference no: EM132494769

Reference no: EM132494769

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT