Pension funds pay lifetime annuities to recipients. If a firm remains in business indefinitely, the pension obligation will resemble a

perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $$3\mathrm{.}0$ million per

year to beneficiaries. The yield to maturity on all bonds is $20\%.$

Required:

a$.$ If the duration of $5-$year maturity bonds with coupon rates of $16\%($paid annually$)$ is $3\mathrm{.}7$ years and the duration of $20-$year maturity

bonds with coupon rates of $7\%($paid annually$)$ is $6\mathrm{.}5$ years, how much of each of these coupon bonds $($in market value$)$ will you want to

hold to both fully fund and immunize your obligation? $($Do not round intermediate calculations. Enter your answers in millions

rounded to $5$ decimal places.$)$

Answer is complete but not entirely correct.

b$.$ What will be the par value of your holdings in the $20-$year coupon bond? $($Enter your answer in dollars not in millions. Do not

round intermediate calculations. Round your answer to the nearest dollar amount.$)$

Answer is complete but not entirely correct.