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Use the following information to answer the question(s) below. Suppose that you are managing a pension fund with obligations to make perpetual payments of $2
Use the following information to answer the question(s) below. Suppose that you are managing a pension fund with obligations to make perpetual payments of \$2 million per annum to beneficiaries. The yield to maturity on all bonds is 16% (annualized simple interest rate compounded annually). a) You wish to fund the obligation using 5-year bonds with coupon rate of 10% (paid annually) and 10 -year bonds with coupon rates of 4% (paid annually). How much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunise your obligation? b) What will be the total par value of your holdings in the 10-year coupon bond
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