Pension funds pay lifetime annuities to recipients. if a firm remains in business indefinitely, the pension obligation will resemble a perpetuity. suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $2.0 million per year to beneficiaries. the yield to maturity on all bonds is 16%. a. if the duration of 5-year maturity bonds with coupon rates of 12% (paid annually) is 4.0 years and the duration of 20-year maturity bonds with coupon rates of 5% (paid annually) is 8.2 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation?
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Pension funds pay lifetime annuities to recipients. if a firm remains in business indefinitely, the...