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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 2-year bond?
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