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  3. solution is t_0= 16.15 and a_t_0=961,145 .2.6 a f

solution is t_0= 16.15 and A_t_0=961,145 .2.6 A financial institution has taken over the...

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solution is t_0= 16.15 and A_t_0=961,145

.2.6 A financial institution has taken over the business of another company. One of the acquired liabilities is a capital redemption policy that obligates the payment of 1,000,000 by the institution to the policyholder in exactly 12 years, and requires the policyholder to make annual premium payments (at the start of each of the remaining 12 years) of 15,000 . Out of the assets of the acquired company, the financial institution wants to allocate a single asset income payment At0 to be made at time t0 so that, along with the asset income represented by the premiums payable by the policyholder, the capital redemption policy will be fully immunized at the current interest rate of 10%. Find t0 and the asset income amount At0 that must be allocated, and show that this fully immunizes the policy

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