SOA Exam FM Sample Question 188
Study guide: Exam FM-2
A company is required to pay 500,000 ten years from now and 500,000 fifteen years from now. The company needs to create an investment portfolio using 5-year and 20-year zero-coupon bonds, so that, using a 7% annual force of interest, the present value and Macaulay duration of its assets match those of its liabilities.
Calculate the amount invested today in each bond.
- A) 211,631 for the 5-year bond and 211,631 for the 20-year bond
- B) 217,699 for the 5-year bond and 217,699 for the 20-year bond
- C) 223,852 for the 5-year bond and 199,410 for the 20-year bond
- D) 229,857 for the 5-year bond and 205,540 for the 20-year bond
- E) 248,293 for the 5-year bond and 174,969 for the 20-year bond
Answer this question and see the worked solution
Concepts tested
- Immunization
- Duration
- Force of Interest
- Portfolio
- Asset-Liability Portfolio
- Duration Matching
- Redington Immunization