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Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resembie a perpetuity. Suppose, therefore, that
Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resembie a perpetuity. Suppose, therefore, that vou ace manoging a pension fund with obiggations to make perpefual payments of 530 milikon pes year to beneficiaries. The yeld to maturity on as bonds is 15.5% Requited: a. If the duration of 5 year-maturity bonds with coupon rates of 13 g\% (paid annually) is fout years and the duration of 20 year-maturity bonds with coupon rates of 4.5 (paid annualy is 11 wais, how much of each of these coupon bohds fin market value) will you want to hoid to both fully fund and immienize your obiligation? Note: Do not round intermediote caleuletions. Enter your answers in millions rounded to 2 decimed ploces. b. What will be the par value of your holdings in the 20 year coupon bond? Note: Do not round intermediate calculotions. Enter your onswer in millions rounded to 2 decimal places
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