Question
A pension plan is obligated to make disbursements of $1.7 million, $2.7 million, and $1.7 million at the end of each of the next three
A pension plan is obligated to make disbursements of $1.7 million, $2.7 million, and $1.7 million at the end of each of the next three years, respectively. The annual interest rate is 8%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan?(Do not round intermediate calculations. Round your answers to 2 decimal places.)
Investment in one-year zero-coupon bonds =
Investment in perpetuity =
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