SOA Exam FM Sample Question 270
Study guide: Exam FM-2
Prosperity Insurance sells a two-year annuity with equal payments at the end of each year. The price of this annuity is 9297. Prosperity Insurance creates a portfolio made up of a one-year zero-coupon bond and a two-year zero-coupon bond to immunize this annuity.
The company uses an annual effective interest rate of 5% to value its assets and liabilities.
Calculate the amount invested today in the two-year zero-coupon bond.
- A) 3769
- B) 4535
- C) 4762
- D) 5000
- E) 9297
Answer this question and see the worked solution
Concepts tested
- Immunization
- Duration
- Bonds
- Portfolio
- Asset-Liability Portfolio
- Duration Matching
- Redington Immunization