Revision as of 18:19, 20 November 2023 by Admin (Created page with "A company must pay liabilities of 4000 and 6000 at the end of years one and two, respectively. The only investments available to the company are one-year zero-coupon bonds with an annual effective yield of 8% and two-year zero-coupon bonds with an annual effective yield of 11%. Determine how much the company must invest today to exactly match its liabilities. <ul class="mw-excansopts"><li>8,473</li><li>8,573</li><li>8,848</li><li>9,109</li><li>10,000</li></ul> {{soaco...")
Nov 20'23
Exercise
A company must pay liabilities of 4000 and 6000 at the end of years one and two, respectively. The only investments available to the company are one-year zero-coupon bonds with an annual effective yield of 8% and two-year zero-coupon bonds with an annual effective yield of 11%.
Determine how much the company must invest today to exactly match its liabilities.
- 8,473
- 8,573
- 8,848
- 9,109
- 10,000
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Nov 20'23
Solution: B
The company must purchase 4000 in one-year bonds and 6000 in two-year bonds. The total purchase price is 4000 /1.08 + 6000 /1.112= 8573.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.