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Suppose you are managing a pension fund with obligations to make perpetual payments of $2 million per year to beneficiaries. You are considering using bond
Suppose you are managing a pension fund with obligations to make perpetual payments of $2 million per year to beneficiaries. You are considering using bond A and bond B to immunize your obligations. The Macaulays duration is 6 years for bond A and 14 years for bond B. Both bonds have a yield to maturity of 10%, and the current market interest rate is also 10%. To both fully fund and immunize your obligations, how much should you invest in Bond A and Bond B? 
(Note: Provide the PVs (or prices) of the bonds, not the face values.)
3:10 PM Suppose you are managing a pension fund with obligations to make perpetual payments of $2 million per year to beneficiaries. You are considering using bond A and bond B to immunize your obligations. The Macaulay's duration is 6 years for bond A and 14 years for bond B. Both bonds have a yield to maturity of 10%, and the current market interest rate is also 10%. To both fully fund and immunize your obligations, how much should you invest in Bond A and Bond B? 3:24 PM Type a message Coe tv A A MacBook Pro Step by Step Solution
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Personal Financial Planning
Authors: Lawrence J. Gitman, Michael D. Joehnk, Randy Billingsley
12th Edition
1439044473, 978-1439044476
