An insurance company wants to match liabilities of 25,000 payable in one year and 20,000 payable in two years with specific assets. The following assets are currently available
Calculate the smallest amount the company needs to disburse today to purchase assets that will exactly match these liabilities.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
Solution: C
The strategy is to use the two highest yielding assets: the one-year bond and the two-year zero- coupon bond. The cost of these bonds is 25, 000 /1.0675 + 20, 000 /1.052 =41,560.
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.