Ask Question
2 August, 17:34

An insurance company must make payments to a customer of $8 million in one year and $4 million in four years. The yield curve is flat at 9%. a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase?

+5
Answers (1)
  1. 2 August, 18:02
    0
    1.8356 years

    Explanation:

    The computation of the purchase of maturity bond is shown below:

    Years (A) Payment PVF at 9% PV Weight (B) Duration (A * B)

    1 $8,000,000 0.9174 $7,339,449.54 0.7215 0.7215

    4 $4,000,000 0.7084 $2,833,700.84 0.2785 1.1142

    $101,731,503.39 1 1.8356
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “An insurance company must make payments to a customer of $8 million in one year and $4 million in four years. The yield curve is flat at ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers