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An insurance company has a liability of 7 5 0 , 0 0 0 due four years from now. To protect against interest rate risk,
An insurance company has a liability of due four years from now. To
protect against interest rate risk, it decides to employ the technique of full
immunization. Specifically, it decides to hold three assets, each providing a single
cash flow as follows:
i Asset provides a cash flow of exactly two years from now.
ii Asset Y provides a cash flow of exactly four years from now.
iii Asset provides a cash flow of exactly five years from now.
The annual discount factor is
Calculate
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