Question
You are managing a pension fund that pays out $1 million annually to pensioners in perpetuity. You want to use the following two bonds to
You are managing a pension fund that pays out $1 million annually to pensioners in perpetuity. You want to use the following two bonds to fully cover and immunize against these debts. B Bonds pay interest every year. The market interest rate is 5%. Maturity, par interest rate, par value A 30 0% 1000 B 5 6% 1000
1. Calculate the present value (market value) of your debt and Macaulay's duration
2. Calculate the market price of bond A and Macaulay's duration.
3. Calculate the market price of Bond B and Macaulay's duration.
4. How many stocks of each bond must be purchased to immunize and cover the required amount
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