An insurance company sells an annuity book of business that guarantees a payment of $1,000 every six months for the next
Posted: Sun Apr 10, 2022 8:42 am
An insurance company sells an annuity book of business that
guarantees a payment of $1,000 every six months for the next 2
years. The portfolio manager immunizes this liability using a
2-year 4% Treasury bond. The par value is $1,000, and coupons are
paid semi-annually. Assume that the Treasury zero-coupon yield
curve is flat at 3%.
How much is invested in the bond and cash to achieve
immunization?
guarantees a payment of $1,000 every six months for the next 2
years. The portfolio manager immunizes this liability using a
2-year 4% Treasury bond. The par value is $1,000, and coupons are
paid semi-annually. Assume that the Treasury zero-coupon yield
curve is flat at 3%.
How much is invested in the bond and cash to achieve
immunization?