Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 2. cash flow matching vs. immunization a pension m

2. Cash flow matching vs. Immunization A pension manager must fund a series of payments....

80.2K

Verified Solution

Question

Finance

image
2. Cash flow matching vs. Immunization A pension manager must fund a series of payments. The payments and the prices of zero coupon bonds associated with the same dates are Date (Years) 0.5 1.0 1.5 2.0 Payment 1000 1200 2500 1500 Zero Price (%) 99.50 98.00 97.00 96.00 (a) Compute the present value of the pension fund's liabilities, by setting up a portfolio of zero coupon bonds that delivers exactly the cash flows required, and calculating its price (b) Use the durations of the zeros to compute the duration of the matching portfolio, and hence of the liabilities. (c) Suppose the pension manager decided to fund the payments using a combination of only 0.5- and 2-year zeros. What combination of these two instruments has the same value and duration as the fund's liabilities? (d) Assume now the 2-year continuously compounded spot rate rises to 3%, while the other spot rates are unchanged. Which of the two portfolios would suffer more from the increase in this rate: the cash-flow matched portfolio (obtained in (a)) or the duration-matched portfolio (obtained in (c) Compute the new values of the two portfolios

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Parramore Corp has $14 million of sales, $3 million of inventories, $2 million of receivables, and...

Finance
Q

What role will communications and technology play for the company of Nvidia in the future? How...

Operations Management
Q

Describe and discuss how climate and weather affects the stability of biodiversity and ecosystems. In our...

Biology
Q

What have you learned about the situation of African Americans in the US? Why African Americans...

Psychology
Q

Discuss the types of controls that can be used in organizations.

Economics
Q

Draw a circle and construct "a pie chart" that describes your identity as you see it...

Advance Math
Q

Two atoms share two pairs of electrons Two atoms share one electron O One atom...

Biology
Q

The term used for withdrawal of Southern states from the Union was O Reconstruction Secession...

Biology
Q

The Cosine Law is valid for any triangle but it is only useful if you...

Basic Math
Q

At acquisition date, all the identifiable assets and liabilities of Stirling Ltd were recorded at...

Accounting
Q

The following Information is for Hulk Gym's first year of operations. Amounts are In millions...

Accounting
Q

A person wants to establish an annuity for retirement. He wants to make monthly deposits...

Accounting