Using a discount rate of 5.5% compounded annually, a pension fund estimates that the present value of its assets and liabilities are $7 million and $4 million, respectively. The duration of the assets is 11 years and the duration of the liabilities is 27 years. (a) Suppose that the interest rate decreases to 5.45%. Estimate the relative changes in the fund's assets and liabilities. Express yours answers as percentages, to the nearest basis point. Relative Change in Assets % Relative Change in Liabilities = % (b) Using your rounded answers from (a), estimate the absolute changes in the fund's assets and liabilities. Express your answers in millions of dollars, to the nearest thousand. Absolute Change in Assets = $ million Absolute Change in Liabilities $ million (c) The fund's net worth is defined as the difference between its assets and liabilities. Using your answers from (b), estimate the relative change in the fund's net worth. Express your answer as a percent, to the nearest basis point. Relative Change = %

Using a discount rate of 5.5% compounded annually, a pension fund estimates that the present value of its assets and liabilities are $7 million and $4 million, respectively. The duration of the assets is 11 years and the duration of the liabilities is 27 years. (a) Suppose that the interest rate decreases to 5.45%. Estimate the relative changes in the fund's assets and liabilities. Express yours answers as percentages, to the nearest basis point. Relative Change in Assets % Relative Change in Liabilities = % (b) Using your rounded answers from (a), estimate the absolute changes in the fund's assets and liabilities. Express your answers in millions of dollars, to the nearest thousand. Absolute Change in Assets = $ million Absolute Change in Liabilities $ million (c) The fund's net worth is defined as the difference between its assets and liabilities. Using your answers from (b), estimate the relative change in the fund's net worth. Express your answer as a percent, to the nearest basis point. Relative Change = %

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

ChapterM: Time Value Of Money Module

Section: Chapter Questions

Problem 10RE: If 90,000 is invested in a fund on December 31, 2019, and 5 equal annual withdrawals of 23,138.32...

See similar textbooks

Similar questions

If 90,000 is invested in a fund on December 31, 2019, and 5 equal annual withdrawals of 23,138.32 are made starting on December 31, 2020, that will deplete the fund, what is the interest rate being earned if interest is compounded annually?
A pension fund projects its cash flow obligations to be constant at $5MIn for the next 10 years and then grow by 5% in perpetuity starting year 11. Assume that interest rates are constant at 4% for the next ten years and will then increase to 6% from year 11 onwards. Determine the present value of the pension fund obligations. (Hint: You may want to divide the cash flows into the annuity and the growing perpetuity component.)
Answer the following questions using Excel's RATE, NPER, PMT, PV and FV functions. 2. What sum of money invested today in a retirement fund will permit withdrawals of $600.00 at the end of each month for twenty years if interest is 6% compounded semi- annually?
determine the size of the payments that must be made to a sinking fund in order to accumulate $233,188 if the interest rate is 5.25% compounded quarterly and payments are made for 7 1/4 years. Use TVM solver
A pension fund is expected to produce a cash flow of $1,000 at the end of the upcoming year. This cash flow will grow at a rate of 10% for five years and then at the rate of 7% indefinitely. Assume the annual interest rate for pension-related investments is 12%. 1) What is the value of the pension fund?
A lump sum S deposited into either fund X or fund Y will be exactly sufficient to provide a perpetuity of $100 per year with the first payment due at the end of one year. Fund X will earn interest at an effective annual rate of 10% for the first 30 years and 6% thereafter. Fund Y will earn interest at a level effective annual rate of j. In which of the following ranges is j? someone help?
A pension fund starts the year with $50million. After 6 months it has appreciated to $60million at which point it pays out pension of $20million. In the second half of the year, the fund appreciates by a further 50% Required; 1. Calculate the annually compounded $ Time weighted rate of return 2. Calculate the annually $ weighted rate of return 3. Suppose that this fund has a midyear cash inflow of $ 20 million rather than an outflow. Would this reduce or increase the time weighted rate of return
Find the interest rate needed for the sinking fund to reach the required amount. Assume that the compounding period is the same as the payment period. $29,488 to be accumulated in 5 years; quarterly payments of $1275. %- The interest rate needed is approximately (Type an integer or decimal rounded to two decimal places as needed.)
A fund is built with annual payments increasing by $1 from $1 to $10 and then decreasing by $1 to $0. The first payment of $1 is made today. If the fund is used to purchase a ten-year level annuity with the first payment at twenty years from today, what is the amount of the level payment? (Assume an annual effective rate of interest of 4%.) Possible Answers A B D <$16 c≥ $17 but < $18 E ≥ $16 but < $17 ≥ $18 but < $19 ≥ $19
You deposit $600 today into a fund that you intend to leave invested for 6 years. The fund earns 6% interest compounded annually. Indicate the inputs to be entered into the financial calculator keys. What is the value of the fund to be accumulated at the end of year 6? (Round future value answer to two decimal places (e.g., 52.75) and interest rate to one decimal place (e.g., 527.5).) Inputs Calculator N Keys Future value $ 6 I 6 PV 600
Assuming annual interest rates on comparable investments are 3,5%. What annual income could be expected by someone who had saved E140.000 in their personal pension fund and spent it all on a 25-year annuity? Select one: O a. £8,49496 O b. E8,347.58 O C. E9,478.09
What is the equivalent average annual effective rate of interest over 5-year period if the fund earns d^{(4)} = 4% for the initial 1 year, d^{(12)} = 6% for the next 2 years, and i^{(6)} = 9% in the last 2 years?