Alpha Insurance Company is obligated to make payments of $2 million, $3 million, and $4 million...

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Finance

Alpha Insurance Company is obligated to make payments of $2million, $3 million, and $4 million at the end of the next threeyears, respectively. The market interest rate is 8% perannum.

i. Determine the duration of the company’s payment obligations.

ii. Suppose the company’s payment obligations are fully funded andimmunized using both 6-month zero coupon bonds and perpetuities.Determine how much of each of these bonds the company will hold inthe portfolio. (7 marks )

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Alpha Insurance Company is obligated to make payments of $2million, $3 million, and $4 million at the end of the next threeyears, respectively. The market interest rate is 8% perannum.i. Determine the duration of the company’s payment obligations. ii. Suppose the company’s payment obligations are fully funded andimmunized using both 6-month zero coupon bonds and perpetuities.Determine how much of each of these bonds the company will hold inthe portfolio. (7 marks )