Answered step by step
Verified Expert Solution
Question
1 Approved Answer
8. (20 points) Assume a flat yield (and zero) curve of 2 3.4%. A pension fund manager has the following obligations to pay in the
8. (20 points) Assume a flat yield (and zero) curve of 2 3.4%. A pension fund manager has the following obligations to pay in the future: i. $10mn in 5 years' time ii. $10mn in 10 years' time iii. $20mn in 15 years' time For what follows, use annual discounting and round answers to the nearest hundredth (cent or basis point). (a) (5 points) What is the present value of liabilities? (b) (5 points) What is the Macaulay duration of liabilities? (c) (10 points) Assume the pension plan is fully funded in that the manager has cash on hand equal to the present value of liabilities. The manager has already decided to purchase a zero-coupon bond with 5 years to maturity and a face value of $15mn. The manager plans on investing the rest into another zero- coupon bond. What maturity would you recommend? (I am looking for a specific number) Explain why
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started