Portfolio investment in one-year zero-coupon bonds


A pension plan is obligated to make disbursements of $1.2 million, $2.2 million, and $1.2 million at the end of each of the next three years, respectively. The annual interest rate is 10%. If the plan wants to fully fund and immunize its position, how much of its portfolio should it allocate to one-year zero-coupon bonds and perpetuities, respectively, if these are the only two assets funding the plan? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Portfolio Investment in one-year zero-coupon bonds %:

Investment in perpetuity %:

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Financial Management: Portfolio investment in one-year zero-coupon bonds
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