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 $4.2 million per year to beneficiaries. The yield to maturity on all bonds is 20%.

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 $4.2 million per year to beneficiaries. The yield to maturity on all bonds is 20%. Requlred: a. If the duration of 5-year maturity bonds with coupon rates of 16% (paid annually) is 3.7 years and the duration of 20 -year maturity bonds with coupon rates of 10% (paid annually) is 6.2 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 Intermedlote celculetlons. Enter your answers In millions rounded to 5 declmal pleces.) 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 dollers not In milllons. Do not round Intermedlate caleuletions. Round your answer to the nearest dollar amount.) Answer is complete but not entirely correct. 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 $4.2 million per year to beneficiaries. The yield to maturity on all bonds is 20%. Requlred: a. If the duration of 5-year maturity bonds with coupon rates of 16% (paid annually) is 3.7 years and the duration of 20 -year maturity bonds with coupon rates of 10% (paid annually) is 6.2 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 Intermedlote celculetlons. Enter your answers In millions rounded to 5 declmal pleces.) 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 dollers not In milllons. Do not round Intermedlate caleuletions. Round your answer to the nearest dollar amount.) Answer is complete but not entirely correct