Question
An insurance company must make payments to a customer of $10 million in 1 year and $4 million in 5 years. The yield curve is
An insurance company must make payments to a customer of $10 million in 1 year and $4 million in 5 years. The yield curve is flat at 10%.
(a) If it wants to fully fund and immunise its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (6 marks)
(b) What must be the face value and market value of that zero-coupon bond? (2 marks)
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Personal Finance
Authors: Jack Kapoor, Les Dlabay, Robert J. Hughes, Arshad Ahmad, Jordan Fortino
6th Canadian edition
1259453146, 978-1259453144
