CAS Exam 9 Spring 2017, Question 11
Study guide: Exam 9
An insurance company must make the following payments:
| Payment Amount | Payment Timing |
|---|---|
| $1 million | t=1 |
| $2 million | t=3 |
| $3 million | t=5 |
- The company wants to fully fund and immunize its obligation by issuing a zero-coupon bond at t=0.
- The yield curve is flat at 8%.
Part a (1 point)
Calculate the maturity of the zero-coupon bond.
Part b (0.5 points)
Immediately after issuing the bond, the entire yield curve shifts to 10%. Calculate the revised value of the zero-coupon bond.
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