Question
An insurance company must make a payment of $5,788.125 in 3 years and another $12,762.82 in 5 years. The market interest rate is 5 %.
An insurance company must make a payment of $5,788.125 in 3 years and another $12,762.82 in 5 years. The market interest rate is 5 %. The companys portfolio manager wishes to fund the obligation using 2-year zero-coupon bonds and perpetuities paying annual coupons. How can the manager immunize the obligation? How much money should be invested in perpetuities?
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Valuation Workbook
Authors: Tim Koller, Marc Goedhart, David Wessels, Jeffrey P. Lessard, McKinsey & Company
4th Edition
0471702161, 978-0471702160
