10 points 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 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 four years and the duration of 20-year maturity bonds with coupon rates of 6% (paid annually) is eight 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.) Answer is complete but not entirely correct. Holdings 5-year bond S 6.7 milion 20-year bond S 5.8 milion b. What will be the par value of your holdings in the 20-year coupon bond? (Do not round intermediate calculations. Enter your answer in dollars not in millions) Answer is complete but not entirely correct. Par value 143 You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity five years, and a perpetuity, each currently yielding 5% a. How much of () the zero-coupon bond and (1) the perpetuity will you hold in your portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Zero-coupon bond Perpetuity bond 5.00 % 5.00 % b. How will these fractions change next year if target duration is now nine years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) % Zero-coupon bond Perpetuity bond %