An Insurance company has a liability of INR 100,000 due in eight years’ time. The company which has exactly sufficient money to cover the liability using a constant force of interest at 5% p.a., now wishes to invest this money in a combination of securities below 1. Zero coupon bond redeemable at par in 20 years' time 2. Very short term deposits equivalent to interest bearing cash i) The insurance company requires that on the basis of the constant force of interest at 5% p.a., the discounted mean of the assets equal to that of the liability. Find the amounts to be invested in each of the above securities 1 and 2 (6) ii) Assuming investments are made in securities 1 and 2, find the present value of the profit to the company on the basis of the constant force of interest at 3% p.a.
What's your issue? This is simply a question. In an exam you can't not start. So think the problem through. It's effectively solving equations of value and algebraic manipulation. With these long wordy questions it may help if you draw yourself time lines to give a picture of what's proposed.
