Question

A company owes $500$ and $1000$ to be paid at the end of year one and year four,

respectively. The company will set up an investment program to match the duration and

the present value of the above obligation using an annual effective interest rate of $10\%.$

The investment program produces asset cash flows of $x$ today and $Y$ in three years.

Calculate $x$ and determine whether the investment program satisfies the conditions for

Redington immunization.

Possible Answers

$x=75$ and the Redington immunization conditions are not satisfied.

$x=75$ and the Redington immunization conditions are satisfied.

$x=1138$ and the Redington immunization conditions are not satisfied.

$x=1138$ and the Redington immunization conditions are satisfied.

$x=1414$ and the Redington immunization conditions are satisfied.