SOA Exam FM Sample Question 148
Study guide: Exam FM-2
A company has liabilities that require it to make payments of 1000 at the end of each of the next five years. The only investments available to the company are as follows:
| Investment | Price | Subsequent Cash Flows |
|---|---|---|
| J | 1500 | 500 at the end of each year for 5 years |
| K | 500 | 1000 at the end of year 5 |
| L | 1000 | 500 at the end of each year for 4 years |
| M | 4000 | 1000 at the end of each year for 5 years |
The company is able to purchase as many of each investment as it wants, but only in whole units. The company's investment objective is to be fully immunized over the next five years.
Calculate the lowest possible cost to achieve this objective.
- A) 1500
- B) 2000
- C) 2500
- D) 3000
- E) 4000
Answer this question and see the worked solution
Concepts tested
- Immunization
- Bonds
- Present Value
- Portfolio
- Asset-Liability Portfolio
- Full Immunization
- Cash Flow Matching