An insurance company must make a payment of $19,487 in seven years. The market interest rate is 10%. You are the portfolio manager for the insurance company and you wish to fund this obligation with a three-year zero coupon bond and perpetuities paying annual coupons. How would you immunize the obligation? Step one: Calculate the duration of this liability. To get you started calculate the PV of the obligation. i.e. what is the PV of $19,487 needed in seven years discounted at 10%? The cash flow of this is identical to a zero-coupon bond. So the duration would be determined exactly the same. Step two: Calculate the duration of the asset portfolio. The portfolio duration is the weighted average of duration of each component asset, with weights proportional to the funds placed in each asset. So calculate the duration of the zero-coupon bond, and also the duration of the perpetuity. (the equation for calculating the duration of a perpetuity is (1+y)/y. Where y = market interest rate. What is the duration for each? The fraction of the portfolio invested in the zero coupon is called "w", and the fraction invested in the perpetuity is (1-w) w=weighted proportion. Hint: Asset Duration of the portfolio = ["w" X (duration of the zero-coupon bond)] + [(1-w) X the duration of the perpetuity.] Step three: Find the asset mix that sets the duration of assets equal to the duration of the liability, i.e. the needed payment (7 years) now solve for "w". This gives you the weights to be invested in the zero-coupon bond and the weight needed to be invested in the perpetuity. What are the weights? That is "w" = ? What are the amounts to be invested in the zero-coupon bond and the amount to be invested in the perpetuity? Step four: Fully fund the obligation. You will need to fund the PV of the liability or $10,000. What amount do you need to invest it the zero-coupon bond today? And what amount do you invest in the perpetuity today? 7. Rebalancing the bond portfolio: Now suppose one year has passed, and the market interest rates remain at 10%. You will need to reexamine your portfolio in #6 above. Is the position still fully funded? Is it still immunized? If not, what actions are required? a. Step one: Examine the funding. What is the PV of the liability now? (remember, one year as gone by, so there are only 6 years left in the required $19,487) b. What is the value now of you asset portfolio? (the zero-coupon bond and the perpetuity? That is, how much is the zero-coupon bond now worth? How much have you earned on the perpetuity? What is the amount still invested in the perpetuity? Is the obligation still fully funded? c. The portfolio weights must now be changed given a year has gone by. (the zero-coupon bond has only 2 years left now, while the perpetuity duration remains at 11 years. The obligation is now due in six years. The weights must now satisfy the equation: W X 2 + (1-w) X 11 = 6 yearswhat does "w" equal? To rebalance the portfolio and maintain the duration match, you must now invest a total of ___________ X "w" which equals ________ in the zero-coupon bond. You have earned _____ in interest from the perpetuity, which can be invested in the zero-coupon bond.Is this enough?If not, how much more will you need?_______

Chapter 4 Trial Balance Question 1 Below are the transactions for the month of January 2020 for Cerdik Pandai Enterprise, a sole trader: 1 Started business with cash RM30,000 2 Bought goods on credit from Alibaba Enterprise RM2,000 3 Paid office rent by cash RM800 4 Paid RM20,000 of business cash into business bank account 5 Sold goods on credit to Hang Lekir Sdn Bhd worth RM3,300 7 Bought stationery and paid by cheque amounted to RM280 11 Cash sales RM2,600 to Hang Kasturi & Co 12 Returned goods to Alibaba Enterprise for RM420 13 Sold goods on credit to Kasawari Sdn Bhd worth RM5,100 14 Goods returned by Kasawari Sdn Bhd RM340 15 Paid Alibaba Enterprise by cheque RM1,200 16 Cash purchases of RM550 from Adoyai Comel 17 Received cheque from Hang Lekir Sdn Bhd RM500 18 Received commission by cash RM850 Required: a) Record the above transactions in the relevant accounts b) Prepare a Trial Balance for Cerdik Pandai Enterprise as at 31 January 2020O adjusted trial balance. QUESTION 29 The balance in the Prepaid Rent account before adjustment at the end of the year is $21.000, which represents three months rent paid on December 1. The adjusting entry required on December 31 is to debit Rent Expense, $7,000; credit Prepaid Rent, $7,000. O debit Rent Expense, $14,000: credit Prepaid Rent $14,000. O debit Prepaid Rent. $7,000; credit Rent Expense, $7.000. O debit Prepaid Rent, $14,000; credit Rent Expense. $14,000. QUESTION 30 Valuing assets at their fair value rather than at their cost is inconsistent with the: O economic entity assumption. O historical cost principle. O periodicity assumption. full disclosure principles. QUESTION 31 Click Save and Submit to save and submit. Click Save All Aperers to save all answers. DELLQuestion 17 4.75 pix Which of the following is the correct ordering of the accounting cycle? Record journal entry, post to the general ledger, unadjusted trial balance, adjusting entries, adjusted trial balence, fruuncial statements. Post to the general ledger, record journal entry. adjusting entries, unadjusted trul balance, preparation ol financial statements, and adjusted trul balance. ) Post to the general ledger, record journal entry unadjusted trull balance, adjusting entries, preparation of financial statements, closing entries, and adjusted trial balance, Record journal entry, post to the general ledger, adjusting entries, unadjusted trial balance, preparation of hruncial jestements, and adjusted triad buturge.Date Account Titles Ref Debit ($) Credit Aug-31 Insurance expense 500 Prepaid insurance 500 (To record insurance expired) Aug-31 N/A b Aug-31 Depreciation expense C 250 Accumulated depreciation 250 (To record depreciation expense) Aug-31 Interest expense 90 Accured interest 90 (To record accrued interest) Aug-31 Salaries expense 3,400 Accrued salary 3,400 (To record accrued salary) Aig 31 Unearned revenue 3.000 Revenue 3,000 (To record revenue earned)ACCT 201 Case Spring 2020 Page 9 4. Using the following data, prepare adjusting entries for the month ended August 31. Insurance expired during August, $500. A count of supplies on August 31 indicated $1,400 on hand. C. Depreciation on the computer for August is $250. Interest of $90 is accrued on the note payable. Accrued salary for Ima Nurd at August 31 is $3,400. $3,000 of the unearned revenue has been earned. REQUIRED: Prepare the adjusting entries at August 31. General Journal J1 Date Account Titles Ref Debit Credit 5. Post these entries to the T-accounts on pages 6 & 7