Business, 05.05.2021 16:20 braines2003

As of 12/31/2013, an insurance company has a known obligation to pay $1,000,000 on 12/31/2017. To fund this liability, the company immediately purchases 4-year 5% annual coupon bonds totaling $822,703 of par value. The company anticipates reinvestment interest rates to remain constant at 5% through 12/31/2017. The maturity value of the bond equals the par value. Consider two reinvestment interest rate movement scenarios effective 1/1/2014. Scenario A has interest rates drop by 0.5%. Scenario B has interest rates increase by 0.5%. Determine which of the following best describes the insurance company's profit or (loss) as of 12/31/2017 after the liability is paid. А. Scenario A - (18,910), Scenario B - 19,190
B. Scenario A - (14,760), Scenario B - 14,420
C. Scenario A -(1,310), Scenario B - 1,320

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As of 12/31/2013, an insurance company has a known obligation to pay $1,000,000 on 12/31/2017. To fu...