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You manage a pension fund, which provides retired workers with lifetime annuities. The fund must pay out $3.57 million per year to cover these annuities.
You manage a pension fund, which provides retired workers with lifetime annuities. The fund must pay out $3.57 million per year to cover these annuities. Assume for simplicity that these payments continue forever at the current levels, i.e., they never cease. The interest rate is 5.4% (flat term structure).
(a) What is the duration of the fund's perpetual payout obligation?
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