Method and apparatus for funding a future liability of uncertain cost

• US 4,752,877 A
• Filed: 04/09/1986
• Issued: 06/21/1988
• Est. Priority Date: 03/08/1984
• Status: Expired due to Term

• Current Assignee: College Savings Bank (NexBank SSB)
• Original Assignee: College Savings Bank (NexBank SSB)
• Inventors: Roberts, Peter A., Finnerty, John D.
• Primary Examiner(s): Fleming, Michael R.
• Application Number:
  US06/849,779
• Time in Patent Office: 804 Days
• Field of Search: 364/400, 364/401, 364/402, 364/406, 364/408, 364/200, 364/900, 364/300, 364/715, 364/716, 364/735, 235/379, 235/380, 235/383
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A method and apparatus are provided to fund a certain future liability of uncertain value and thereby defease fully its future cost. The method is an insurance investment plan which can be implemented using a floating rate zero coupon note obligation the interest rate on which varies automatically with the rate of inflation or the cost of some specified service or commodity which gives rise to the future liability, and the interest payments on which are automatically reinvested. The system projects the expected future cost of the liability based on a projected escalation rate associated with a certain specified index and based also on when the liability is expected to come due. It then calculates the present value sale price on the floating rate zero coupon note by discounting the expected cost at maturity at a rate that represents the insurer'"'"'s projected reinvestment yield net of an insurance risk premium.

Claims

1. A data processing system for administering a program to substantially reduce the uncertainty regarding the cost of a future liability whose projected due date and whose present cost are known but whose future cost is unknown but can be projected with some risk factor, said liability arising from the need to purchase a service or commodity, and thereby for defeasing said liability, said system comprising:

means for determining the price to be charged to defease said liability based on the present cost of said service or commodity, data concerning the average future spread between the inflation rate for that service or commodity and investment yields, a risk premium linked to volatility of said spread, and the time period to said due date;

means responsive to the determined price for issuing at said price a floating rate zero coupon note for defeasing said liability, said floating rate zero coupon note having a scheduled maturity date and being redeemable; and

means for determining a redemption value of said floating rate zero coupon note based on the cost of the service of commodity at the time of purchase, escalation in cost of the service of commodity since that time as measured by a specific index, the unamortized discount or premium balance, and, when redemption occurs prior to maturity, a specified schedule of penalties for early withdrawal.

2. The data processing system of claim 1, wherein said means for determining the price to be charged to defease said liability comprises:

means for calculating a future value escalation rate based on information concerning at least the projected rate of change of the cost of said service or commodity;

means responsive to said calculated future value escalation rate for determining a present value discount rate by subtracting the future value escalation rate and an insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

means responsive to said determined present value discount rate for discounting the current cost of said service of commodity at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

means responsive to said discounted current cost for determining an aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

3. The data processing system of claim 1, wherein said means for determining a redemption value of a floating rate zero coupon note comprises:

early redemption determining means for determining whether redemption is being requested prior to the scheduled maturity date for said floating rate zero coupon note;

means responsive to an early redemption determination for determining the early withdrawal penalties that apply, based on the floating rate zero coupon note purchase date and the schedule of contractural early withdrawal penalties, when redemption occurs prior to maturity;

means for calculating the fraction of the period the floating rate zero coupon note was held in the period it was purchased and the fraction of the period it was held in the period it was redeemed;

means responsive to said early redemption determination, to said penalty determining means and to said fraction calculating means for calculating an adjusted escalation rate corresponding to each period the floating rate zero coupon note was held based on the fraction of that period it was held, the rate of escalation in the cost of the service or commodity during that period and, in the event of redemption prior to maturity, the early withdrawal penalty factor to be applied to that period; and

means responsive to said early redemption determination and to said calculated adjusted escalation rate for escalating the cost of the service or commodity at the floating rate zero coupon note purchase date by the sequence of adjusted escalation rates that correspond to each period the floating rate zero coupon note was held, adding the unamortized premium or discount balance, if any, and in the event redemption occurs prior to maturity, multiplying by a penalty factor fraction not greater than one, to determine the redemption value.

4. The data processing system of claim 1 further comprising:

account list means for storing current information for each floating rate zero coupon note account;

means for entering floating rate zero coupon note purchase and redemption data and account holder inquiries;

means for processing periodically said floating rate zero coupon note purchase and redemption transaction data to update said account list and to determine the net amount of transactions for the period;

asset position list means for storing current information concerning a portfolio of investments purchased with funds received from sale of said floating rate zero coupon note and interim investment cash flows;

portfolio management means for selecting a portfolio of securities and updating said asset position list periodically;

means for entering the selected security purchase and sale transaction data to update the asset position list;

monitoring means for periodically monitoring the investment performance of the system;

management reporting means for periodically reporting a summary of purchase and redemption transactions from said purchase and redemption processing means, asset position from said asset position list, liability position, and investment performance from said monitoring means;

means for calculating the investment income and taxable income accruing to the holder of a floating rate zero coupon note each period;

investor reporting means responsive to said investment income calculating means for periodically reporting to account holders the status of their accounts and investment income and taxable income earned in their accounts during the period; and

transaction and inquiry reporting means responsive to said investor reporting means for confirming individual transactions and responding to inquiries from account holders.

5. The data processing system of claim 4, wherein said portfolio management means for selecting a portfolio of securities and updating said asset position list periodically comprises:

means for determining the schedule of projected floating rate zero coupon note liabilities based on the aggregate maturity schedule for the floating rate zero coupon notes and actuarial data regarding the likelihood of redemptions prior to maturity;

means for determining the amount of funds available for investment based on the amount of cash on hand and the current market value of the investment portfolio; and

means responsive to the schedule of projected floating rate zero coupon note liabilities, the projected cash need for the following period, amount of funds available for investment, projected interest rates, schedule of yields currently available for investment, the current composition of the investment portfolio, and predefined portfolio selection criteria, for selecting securities to be purchased or sold.

6. The data processing system of claim 5, wherein said portfolio management means further comprises means for evaluating the effect of the selected purchases or sales on the portfolio for rejecting any selection that would result in a yield on the portfolio that is less than a composite cost of the floating rate zero coupon note liabilities, and for rejecting also any selection that would result in a projected income stream for which the income projected for any period is less than the projected floating rate zero coupon note liability for said period.

7. The data processing system of claim 4, wherein said management reporting means for periodically reporting a summary of purchase and redemption transactions, asset and liability positions, and investment performance comprises means for keeping running totals of the numbers of floating rate zero coupon notes of each maturity that are outstanding at each point in time, that were purchased to date during the period, that were redeemed to date during the period, that were purchased during the day, and that were redeemed during the day and running totals of the dollar volume of floating rate zero coupon note redemptions and floating rate zero coupon note purchases for the day and for the period.

8. The data processing system of claim 7, wherein said management reporting means further comprises:

means for calculating the yield on the investment portfolio by determining the internal rate of return of the cash flow stream expected from the investment portfolio; and

means for calculating the cost of said floating rate zero coupon notes by determining the internal rate of return of the cash flow stream corresponding to the aggregate maturity schedule for the floating rate zero coupon notes.

9. The data processing system of claim 8 wherein said management reporting means further comprises means for converting the yield on the investment portfolio and the cost of the floating rate zero coupon notes to a common basis.

10. The data processing system of claim 9 wherein said common basis is a semi-annular equivalent basis.

11. The data processing system of claim 10 wherein said monitoring means further comprises:

means for calculating the average assets under management during the period based on the market value of the investment portfolio at the end of the period and the market value of the investment portfolio at the beginning of the period; and

means for calculating the return on initial assets, the return on average assets, the cash return on initial assets, and the cash return on average assets.

12. The data processing system of claim 11 wherein said monitoring means further comprises means for determining whether the system is overfunded or underfunded and the amount of any overfunding or underfunding.

13. The data processing system of claim 4, wherein said monitoring means for periodically monitoring investment performance of the system comprises means for calculating the income from the investment portfolio during the period by summing the amount of unrealized appreciation in the value of the investment portfolio during the period, the amount of investment income realized in cash during the period, and the capital gain or loss on securities transactions during the period.

14. The data processing system of claim 4, wherein said means for calculating the amount of investment income and taxable income generated for each floating rate zero coupon note during a period comprises:

means for calculating the accretion during the period, whether the floating rate zero coupon note was held for the entire period or only for part of it;

means responsive to said accretion calculating means for determining the amount of taxable income for the period; and

means for calculating the amount of investment income based on the rate of escalation in the cost of the service or commodity during the period and the amount of amortization of the discount or premium during the period.

15. The data processing system of claim 1, wherein said means for determining the price to be charged to defease said liability comprises:

means for calculating a future value escalation rate based on information concerning at least the current cost of said service or commodity and the projected rate of change of the cost of said service or commodity;

means responsive to said calculated future value escalation rate for calculating the face value of the floating rate zero coupon note by compounding the current cost of the service or commodity over the life of the floating rate zero coupon note at the future value escalation rate;

means for determining a present value discount rate by subtracting an insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

means responsive to said calculated face value and to said determined present value discount rate for discounting the face value of said floating rate zero coupon note at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

means responsive to said discounted face value for determining an aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

16. The data processing system of claim 1, wherein said means for determining a redemption value of a floating rate zero coupon note comprises:

early redemption determining means for determining whether redemption is being requested prior to the scheduled maturity date for said floating rate zero coupon note;

means responsive to an early redemption determination for determining the early withdrawal penalties that apply, based on the floating rate zero coupon note purchase date and the schedule of contractual early withdrawal penalties, when redemption occurs prior to maturity;

means for calculating the fraction of the period the floating rate zero coupon note was held in the period it was purchased and the fraction of the period it was held in the period it was redeemed;

means responsive to said early redemption determination to said penalty determining means and to said fraction calculating means for calculating an adjusted escalation rate corresponding to each period the floating rate zero coupon note was held based on the fraction of that period it was held, the rate of escalation of the cost of the service or commodity during that period and, in the event of redemption prior to maturity, the early withdrawal penalty factor to be applied to that period; and

means responsive to said early redemption determination and to said calculated adjusted escalation rate for escalating the cost of the service or commodity at the floating rate zero coupon note purchase date by the sequence of adjusted escalation rates that correspond to each period the floating rate zero coupon note was held, adding the unamortized premium or discount balance, if any, and in the event redemption occurs prior to maturity, multiplying by a penalty factor fraction not greater than one, to determine the redemption value.

17. The data processing system of claim 1 further comprising:

account list means for storing current information for each floating rate zero coupon note account;

means for entering floating rate zero coupon note purchase and redemption data and account holder inquiries;

means for processing periodically said floating rate zero coupon note purchase and redemption transaction data to update said account list and to determine the net amount of transactions for the period;

asset position list means for storing current information concerning a portfolio of investments purchased with funds received from sale of said floating rate zero coupon note and interim investment cash flows;

portfolio management means for selecting a portfolio of securities and updating said asset position list periodically, based on the amount of cash that is available for investment, the current composition of the investment portfolio, the projected cash need for the following period, the projected aggregate floating rate zero coupon note liablility schedule, and predefined portfolio selection criteria, for generating a stream of cash flows from the portfolio that will be sufficient to cover in full in a timely manner the cost of redeeming the floating rate zero coupon notes;

means for entering the selected security purchase and sale transaction data to update the asset position list;

monitoring means for periodically monitoring the investment performance of the system;

management reporting means for periodically reporting a summary of purchase and redemption transactions from said purchase and redemption processing means, asset position from said asset position list, liability position, and investment performance from said monitoring means;

means for calculating the investment income and taxable income accruing to the holder of a floating rate zero coupon note each period;

investor reporting means responsive to said investment income calculating means for periodically reporting to account holders the status of their accounts and investment income and taxable income earned in their accounts during the period; and

transaction and inquiry reporting means responsive to said investor reporting means for confirming individual transactions and responding to inquiries from account holders.

18. The data processing system of claim 17, wherein said portfolio management means for selecting a portfolio of securities and updating said asset position list periodically comprises:

means for determining the schedule of projected floating rate zero coupon note liabilities based on the aggregate maturity schedule for the floating rate zero coupon notes and actuarial data regarding the likelihood of redemptions prior to maturity;

means for determining the amount of funds available for investment based on the amount of cash on hand and the current market value of the investment portfolio; and

means responsive to the schedule of projected floating rate zero coupon note liabilities, the projected cash need for the following period, the amount of funds available for investment, projected interest rates, schedule of yields currently available for investment, the current composition of the investment portfolio, and predefined portfolio selection criteria, for selecting securities to be purchased or sold.

19. The data processing system of claim 18, wherein said portfolio management means further comprises means for evaluating the effect of the selected purchases or sales on the portfolio for rejecting any selection that would result in a yield on the portfolio that is less than a composite cost of the floating rate zero coupon note liabilities, and for rejecting also any selection that would result in a projected income stream for which the income projected for any period is less than the projected floating rate zero coupon note liability for said period.

20. The data processing system of claim 17, wherein said management reporting means for periodically reporting a summary of purchase and redemption transactions, asset and liability positions, and investment performance comprises means for keeping running totals of the numbers of floating rate zero coupon notes of each maturity that are outstanding at each point in time, that were purchased to date during the period, that were redeemed to date during the period, that were purchased during the day, and that were redeemed during the day and running totals of the dollar volume of floating rate zero coupon note redemptions and floating rate zero coupon note purchases for the day and for the period.

21. The data processing system of claim 20, wherein said management reporting means further comprises:

means for calculating the yield on the investment portfolio by determining the internal rate of return of the cash flow stream expected from the investment portfolio; and

means for calculating the cost of said floating rate zero coupon notes by determining the internal rate of return of the cash flow stream corresponding to the aggregate maturity schedule for the floating rate zero coupon notes.

22. The data processing system of claim 21, wherein said management reporting means further comprises means for converting the yield on the investment portfolio and the cost of the floating rate zero coupon notes to a common basis.

23. The data processing system of claim 22 wherein said common basis is a semi-annual equivalent basis.

24. The data processing system of claim 17, wherein said monitoring means for periodically monitoring investment performance of the system comprises means for calculating the income from the investment portfolio during the period by summing the amount of unrealized appreciation in the value of the investment portfolio during the period, the amount of investment income realized in cash during the period, and the capital gain or loss on securities transactions during the period.

25. The data processing system of claim 24, wherein said monitoring means further comprises:

means for calculating the average assets under management during the period based on the market value of the investment portfolio at the end of the period and the market value of the investment portfolio at the beginning of the period; and

means for calculating the return on initial assets, the return on average assets, the cash return on initial assets, and the cash return on average assets.

26. The data processing system of claim 25, wherein said monitoring means further comprises means for determining whether the system is overfunded or underfunded and the amount of any overfunding or underfunding.

27. The data processing system of claim 17, wherein said means for calculating the amount of investment income and taxable income generated for each floating rate zero coupon note during a period comprises:

means for calculating the accretion during the period, whether the floating rate zero coupon note was held for the entire period or only for part of it;

means responsive to said accretion calculating means for determining the amount of taxable income for the period; and

means for calculating the amount of investment income based on the rate of excalation in the cost of the service or commodity during the period and the amount of amortization of the discount or premium during the period.

28. A data processing method for administering a program to substantially reduce the uncertainty regarding the cost of a future liability whose projected due date and whose present cost are known but whose future cost is unknown but can be projected with some risk factor, said liability arising from the need to purchase a service or commodity, and thereby to defease said liability, said method comprising the steps of:

determining the price to be charged to defease said liability based on the present cost of said service or commodity, data concerning the average future spread between the inflation rate for that service or commodity and investment yields, a risk premium linked to volatility of said spread, and the time period to said due date;

responsive to the determined price, issuing at said price a floating rate zero coupon note for defeasing said liability, said floating rate zero coupon note having a scheduled maturity date and being redeemable; and

determining a redemption value of said floating rate zero coupon note based on the cost of the service or commodity at the time of purchase, escalation in cost of the service or commodity since that time as measured by a specified index, the unamortized discount or premium balance, and when redemption occurs prior to maturity, a specified schedule of penalties for early withdrawal.

29. The data processing method of claim 28, wherein said step of determining the price to be charged to defease said liability comprises:

calculating a future value escalation rate based on information concerning at least the projected rate of change of the cost of said service or commodity;

determining, responsive to said calculated future value escalation rate, a present value discount rate by subtracting the future value escalation rate and an insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

discounting, responsive to said determined present value discount rate, the current cost of said service or commodity at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

determining, responsive to said discounted current cost, and aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

30. The data processing method of claim 28, wherein said step of determining a redemption value of a floating rate zero coupon note comprises:

determining whether redemption is being requested prior to the scheduled maturity date for said floating rate zero coupon note;

determining, when redemption is being requested prior to maturity, the early withdrawal penalties that apply, based on the floating rate zero coupon note purchase date and the schedule of contractual early withdawal penalties;

calculating the fraction of the period the floating rate zero coupon note was held in the period it was purchased and the fraction of the period it was held in the period it was redeemed;

calculating an adjusted escalation rate corresponding to each period the floating rate zero coupon note was held based on the fraction of that period it was held, the rate of escalation in the cost of the service or commodity during that period and, in the event of redemption prior to maturity, the early withdrawal penalty factor to be applied to that period; and

escalating the cost of the service or commodity at the floating rate zero coupon note purchase date by the sequence of adjusted escalation rates that correspond to each period the floating rate zero coupon note was held, adding the unamortized premium or discount balance, if any, and in the event redemption occurs prior to maturity, multiplying by a penalty factor fraction not greater than one, to determine the redemption value.

31. The data processing method of claim 28 further comprising the steps of:

maintaining an account list of current information for each floating rate zero coupon note account;

maintaining an asset position list of current information concerning a portfolio of investments purchased with funds received from sale of said floating rate zero coupon note and interim investment cash flows;

entering floating rate zero coupon note purchase and redemption data and account holder inquiries into a data processing system;

processing periodically said floating rate zero coupon note purchase and redemption transaction data to update said account list and to determine the net amount of transactions for the period;

selecting a portfolio of securities and updating said asset position list periodically;

entering the selected security purchase and sale transaction data to update said asset position list;

monitoring periodically the investment performance of the method;

reporting periodically a summary of purchase and redemption transactions, asset and liability positions, and investment performance;

calculating the investment income and taxable income accruing to the holder of a floating rate zero coupon note for each period;

reporting periodically to account holders the status of their accounts and investment income and taxable income earned in their accounts during the period; and

confirming individual transactions and responding to inquiries from account holders.

32. The data processing method of claim 31, wherein said step of selecting a portfolio of securities and updating said asset position list periodically comprises:

determining the schedule of projected floating rate zero coupon note liabilities based on the aggregate maturity schedule for the floating rate zero coupon notes and actuarial data regarding the likelihood of redemptions prior to maturity;

determining the amount of funds available for investment based on the amount of cash on hand and the current market value of the investment portfolio; and

responsive to the schedule of projected floating rate zero coupon note liabilities, to the projected cash need for the following period, to amount of funds available for investment, to projected interest rates, to the schedule of yields currently available for investment, to the current composition of the investment portfolio, and to predefined portfolio selection criteria, selecting securities to be purchased or sold.

33. The data processing method of claim 32, wherein said portfolio updating and selecting step further comprises evaluating the effect of the selected purchases or sales on the portfolio, rejecting any selection that would result in a yield on the portfolio that is less than a composite cost of the floating rate zero coupon note liabilities, and rejecting also any selection that would result in a projected income stream for which the income projected for any period is less than the projected floating rate zero coupon note liability for said period.

34. The data processing method of claim 31, wherein said step of periodically reporting a summary of purchase and redemption transactions, asset and liability positions, and investment performance comprises keeping running totals of the numbers of floating rate zero coupon notes of each maturity that are outstanding at each point in time, that were purchased to date during the period, that were redeemed to date during the period, that were purchased during the day, and that were redeemed during the day and running totals of the dollar volume of floating rate zero coupon note redemptions and floating rate zero coupon note purchases for the day and for the period.

35. The data processing method of claim 34 wherein said periodic reporting step further comprises:

calculating the yield on the investment portfolio by determining the internal rate of return of the cash flow stream expected from the investment portfolio; and

calculating the cost of said floating rate zero coupon notes by determining the internal rate of return of the cash flow stream corresponding to the aggregate maturity schedule for the floating rate zero coupon notes.

36. The data processing method of claim 35, wherein said periodic reporting step further comprises converting the yield on the investment portfolio and the cost of the floating rate zero coupon notes to a common basis.

37. The data processing method of claim 36 wherein said common basis is a semi-annual equivalent basis.

38. The data processing method of claim 31, wherein said step of periodically monitoring investment performance of the method comprises calculating the income from the investment portfolio during the period by summing the amount of unrealized appreciation in the value of the investment portfolio during the period, the amount of investment income realized in cash during the period, and the capital gain or loss on securities transactions during the period.

39. The data processing method of claim 38, wherein said periodic monitoring step further comprises:

calculating the average assets under management during the period based on the market value of the investment portfolio at the end of the period and the market value of the investment portfolio at the beginning of the period; and

calculating the return on initial assets, the return on average assets, the cash return on initial assets, and the cash return on average assets.

40. The data processing method of claim 39, wherein said periodic monitoring step further comprises determining whether the system is overfunded or underfunded and the amount of any overfunding or underfunding.

41. The data processing method of claim 31, wherein said step of calculating the amount of investment income and taxable income generated for each floating rate zero coupon note during a period comprises:

calculating the accretion during the period, whether the floating rate zero coupon note was held for the entire period or only for part of;

determining, responsive to said accretion calculating step, the amount of taxable income for the period; and

calculating the amount of investment income based on the rate of escalation in the cost of the service or commodity during the period and the amount of amortization of the discount or premium during the period.

42. The data processing method of claim 28, wherein said step of determining the price to be charged to defease said liability comprises:

calculating a future value escalation rate based on information concerning at least the projected rate of change of the cost of said service or commodity;

calculating, responsive to said calculated future value escalation rate, the face value of the floating rate zero coupon note by compounding the current cost of the service or commodity over the life of the floating rate zero coupon note at the future value escalation rate;

determining a present value discount rate by subtracting an insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

discounting, responsive to said determined present value discount rate, the calculated face value of said floating rate zero coupon note at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

determining, responsive to said discounted face value, an aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

43. The data processing method of claim 28, wherein said step of determining a redemption value of a floating rate zero coupon note comprises:

determining whether redemption is being requested prior to the scheduled maturity date for said floating rate zero coupon note;

determining, when redemption occurs prior to maturity, the early withdrawal penalties that apply, based on the floating rate zero coupon note purchase date and the schedule of contractual early withdrawal penalties;

calculating the fraction of the period the floating rate zero coupon note was held in the period it was purchased and the fraction of the period it was held in the period it was redeemed;

calculating an adjusted escalation rate corresponding to each period the floating rate zero coupon note was held based on the fraction of that period it was held, the rate of escalation in the cost of the service or commodity during that period and, in the event of redemption prior to maturity, the early withdrawal penalty factor to be applied to that period; and

escalating the cost of the service or commodity at the floating rate zero coupon note purchase date by the sequence of adjusted escalation rates that correspond to each period the floating rate zero coupon note was held, adding the unamortized premium or discount balance, if any, and in the event redemption occurs prior to maturity, multiplying by a penalty factor fraction not greater than one, to determine the redemption value.

44. The data processing method of claim 28 further comprising the steps of:

maintaining an account list of current information for each floating rate zero coupon note account;

maintaining an asset position list of current information concerning a portfolio of investments purchased with funds received from sale of said floating rate zero coupon note and interim investment cash flows;

entering floating rate zero coupon note purchase and redemption data and account holder inquiries into a data processing system;

processing periodically said floating rate zero coupon note purchase and redemption transaction data to update said account list and to determine the net amount of transactions for the period;

selecting a portfolio of securities and updating said asset position list periodically, based on the amount of cash that is available for investment, the current composition of the investment portfolio, the projected cash need for the following period, the projected aggregate floating rate zero coupon note liability schedule, and predefined portfolio selection criteria, thereby generating a stream of cash flows from the portfolio that will be sufficient to cover in full in a timely manner the cost of redeeming said floating rate zero coupon notes;

entering the selected security purchase and sale transaction data to update said asset position list;

monitoring periodically the investment performance of the method;

reporting periodically a summary of purchase and redemption transactions from said selecting and updating step, asset position from said asset position list, liability position, and investment performance from said monitoring step;

calculating the investment income and taxable income accruing to the holder of a floating rate zero coupon note for each period;

reporting periodically to account holders the status of their accounts and investment income and taxable income earned in their accounts during the period; and

confirming individual transactions and responding to inquiries from account holders.

45. The data processing method of claim 44, wherein said step of selecting a portfolio of securities and updating said asset position list periodically comprises:

determining the schedule of projected floating rate zero coupon note liabilities based on the aggregate maturity schedule for the floating rate zero coupon notes and actuarial data regarding the likelihood of redemptions prior to maturity;

determining the amount of funds available for investment based on the amount of cash on hand and the current market value of the investment portfolio; and

responsive to the schedule of projected floating rate zero coupon note liabilities, to the projected cash need for the following period, to amount of funds available for investment, to projected interest rates, to the schedule of yields currently available for investment, to the current composition of the investment portfolio, and to predefined portfolio selection criteria, selecting securities to be purchased or sold.

46. The data processing method of claim 45, wherein said portfolio selecting and updating step further comprises evaluating the effect of the selected purchases or sales on the portfolio, rejecting any selection that would result in a yield on the portfolio that is less than a composite cost of the floating rate zero coupon note liabilities, and rejecting also any selection that would result in a projected income stream for which the income projected for any period is less than the projected floating rate zero coupon note liability for said period.

47. The data processing method of claim 44, wherein said step of periodically reporting a summary of purchase and redemption transactions, asset and liability positions, and investment performance comprises keeping running totals of the numbers of floating rate zero coupon notes of each maturity that are outstanding at each point in time, that were purchased to date during the period, that were redeemed to date during the period, that were purchased during the day, and that were redeemed during the day and running totals of the dollar volume of floating rate zero coupon note redemptions and floating rate zero coupon note purchases for the day and for the period.

48. The data processing method of claim 47, wherein said periodic reporting step further comprises:

calculating the yield on the investment portfolio by determining the internal rate of return of the cash flow stream expected from the investment portfolio; and

calculating the cost of said floating rate zero coupon notes by determining the internal rate of return of the cash flow stream corresponding to the aggregate maturity schedule for the floating rate zero coupon notes.

49. The data processing method of claim 48, wherein said periodic reporting step further comprises converting the yield on the investment portfolio and the cost of the floating rate zero coupon notes to a common basis.

50. The data processing method of claim 49, wherein said common basis is a semi-annual equivalent basis.

51. The data processing method of claim 44, wherein said step of periodically monitoring investment performance of the method comprises calculating the income from the investment portfolio during the period by summing the amount of unrealized appreciation in the value of the investment portfolio during the period, the amount of investment income realized in cash during the period, and the capital gain or loss on securities transactions during the period.

52. The data processing method of claim 51, wherein said periodic monitoring step further comprises:

calculating the average assets under management during the period based on the market value of the investment portfolio at the end of the period and the market value of the investment portfolio at the beginning of the period; and

calculating the return on initial assets, the return on average assets, the cash return on initial assets, and the cash return on average assets.

53. The data processing method of claim 52, wherein said periodic monitoring step further comprises determining whether the system is overfunded or underfunded and the amount of any overfunding or underfunding.

54. The data processing method of claim 44, wherein said step of calculating the amount of investment income and taxable income generated for each floating rate zero coupon note during a period comprises:

calculating the accretion during the period, whether the floating rate zero coupon note was held for the entire period or only for part of it;

determining, responsive to said accretion calculating step, the amount of taxable income for the period; and

calculating the amount of investment income based on the the rate of escalation in the cost of the service of commodity during the period and the amount of amortization of the discount or premium during the period.

55. A data processing system for administering a program to substantially reduce the uncertainty regarding the cost of a future liability whose projected due date and whose present cost are known but whose future cost is unknown but can be projected with some risk factor, said liability arising from the need to purchase a service or commodity, and thereby for defeasing said liability, said system comprising:

means for determining the price to be charged to defease said liability based on the present cost of said service or commodity, data concerning the average future spread between the inflation rate for that service or commodity and investment yields, a risk premium linked to volatility of said spread, and the time period to said due date;

means responsive to the determined price for issuing at said price a floating rate zero coupon note for defeasing said liability, said floating rate zero coupon note having a scheduled maturity date and being redeemable; and

means for determining a redemption value of said floating rate zero coupon note at said scheduled maturity date based on the cost of the service or commodity at said schedule maturity date.

56. The data processing system of claim 55, wherein said means for determining the price to be charged to defease said liability comprises:

means for calculating a future value escalation rate based on information concerning at least the projected rate of change of the cost of said service or commodity;

means responsive to said calculated future value escalation rate for determining a present value discount rate by subtracting the future value escalation rate and an insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

means responsive to said determined present value discount rate for discounting the current cost of said service or commodity at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

means responsive to said discounted current cost for determining an aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

57. The data processing method of claim 55 further comprising:

account list means for storing current information for each floating rate zero coupon note account;

means for entering floating rate zero coupon note purchase data and account holder inquiries;

means for processing periodically said floating rate zero coupon note purchase transaction data to update said account list;

asset position list means for storing current information concerning a portfolio of investments purchased with funds received from sale of said floating rate zero coupon note and interim investment cash flows;

portfolio management means for selecting a portfolio of securities and updating said asset position list periodically;

means for entering the selected security purchase and sale transaction data to update the asset portfolio list;

monitoring means for periodically monitoring the investment performance of the system;

management reporting means for periodically reporting a summary of purchase and redemption transactions from said purchase and redemption processing means, asset position from said asset position list, liability position, and investment performance from said monitoring means;

means for calculating the investment income and taxable income accruing to the holder of a floating rate zero coupon note each period;

investor reporting means responsive to said investment income calculating means for periodically reporting to account holders the status of their accounts and investment income and taxable income earned in their accounts during the period; and

transaction and inquiry reporting means responsive to said investor reporting means for confirming individual transactions and responding to inquiries from account holders.

58. The data processing system of claim 57, wherein said portfolio management means for selecting a portfolio of securities and updating said asset position list periodically comprises:

means for determining the schedule of projected floating rate zero coupon note liabilities based on the aggregate maturity schedule for the floating rate zero coupon notes;

means for determining the amount of funds available for investment based on the amount of cash on hand and the current market value of the investment portfolio; and

means responsive to the schedule of projected floating rate zero coupon note liabilities, the projected cash need for the following period, amount of funds available for investment, projected interest rates, schedule of yields currently available for investment, the current composition of the investment portfolio, and predefined portfolio selection criteria, for selecting securities to be purchased or sold.

59. The data processing system of claim 58 wherein said portfolio management means further comprises means for evaluating the effect of the selected purchases or sales on the portfolio for rejecting any selection that would result in a yield on the portfolio that is less than a composite cost of the floating rate zero coupon note liabilities, and for rejecting also any selection that would result in a projected income stream for which the income projected for any period is less than the projected floating rate zero coupon note liability for said period.

60. The data processing system of claim 57, wherein said management reporting means for periodically reporting a summary of purchase and redemption transactions, asset and liability positions, and investment performance comprises means for keeping running totals of the numbers of floating rate zero coupon notes of each maturity that are outstanding at each point in time, that were purchased to date during the period, that were redeemed to date during the period, that were purchased during the day, and that were redeemed during the day and running totals of the dollar volume of floating rate zero coupon note redemptions and floating rate zero coupon note purchases for the day and for the period.

61. The data processing system of claim 60, wherein said management reporting means further comprises:

means for calculating the yield on the investment portfolio by determining the internal rate of return of the cash flow stream expected from the investment portfolio; and

means for calculating the cost of said floating rate zero coupon notes by determining the internal rate of return of the cash flow stream corresponding to the aggregate maturity schedule for the floating rate zero coupon notes.

62. The data processing system of claim 61, wherein said management reporting means further comprises means for converting the yield on the investment portfolio and the cost of the floating rate zero coupon notes to a common basis.

63. The data processing system of claim 62, wherein said common basis is a semi-annual equivalent basis.

64. The data processing system of claim 57, wherein said monitoring means for periodically monitoring investment performance of the system comprises means for calculating the income from the investment portfolio during the period by summing the amount of unrealized appreciation in the value of the investment portfolio during the period, the amount of investment income realized in cash during the period, and the capital gain or loss on securities transactions during the period.

65. The data processing system of claim 64, wherein said monitoring means further comprises:

means for calculating the average assets under management during the period based on the market value of the investment portfolio at the end of the period and the market value of the investment portfolio at the beginning of the period; and

means for calculating the return on initial assets, the return on average assets, the cash return on initial assets, and the cash return on average assets.

66. The data processing system of claim 65, wherein said monitoring means further comprises means for determining whether the system is overfunded or underfunded and the amount of any overfunding or underfunding.

67. The data processing system of claim 57, wherein said means for calculating the amount of investment income and taxable income generated for each floating rate zero coupon note during a period comprises:

means for calculating the accretion during the period, whether the floating rate zero coupon note was held for the entire period or only for part of it;

means responsive to said accretion calculating means for determining the amount of taxable income for the period; and

means for calculating the amount of investment income based on the rate of escalation in the cost of the service or commodity during the period and the amount of amortization of the discount or premium during the period.

68. The data processing system of claim 55, wherein said means for determining the price to be charged to defease said liability comprises:

means for calculating a future value escalation rate based on information concerning at least the current cost of said service or commodity and the projected rate of change of the cost of said service or commodity;

means responsive to said calculated future value escalation rate for calculating the face value of the floating rate zero coupon note by compounding the current cost of the service or commodity over the life of the floating rate zero coupon note at the future value escalation rate;

means for determining a present value discount rate by subtracting an insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

means responsive to said calculated face value and to said determined present value discount rate for discounting the face value of said floating rate zero coupon note at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

means responsive to said discounted face value for determining an appregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

69. A data processing method for administering a program to substantially reduce the uncertainty regarding the cost of a future liability whose projected due date and whose present cost are known but whose future cost is unknown but can be projected with some risk factor, said liability arising from the need to purchase a service or commodity, and thereby to defease said liability, said method comprising the steps of:

determining the price to be charged to defease said liability based on the present cost of said service or commodity, data concerning the average future spread between the inflation rate for that service or commodity and investment yields, a risk premium linked to volatility of said spread, and the time period to said due date;

responsive to said determined price, issuing at said price a floating rate zero coupon note for defeasing said liability, said floating rate zero coupon note having a scheduled maturity date and being redeemable; and

determining a redemption value of said floating rate zero coupon note at said scheduled maturity date based on the cost of the service or commodity at said scheduled maturity date.

70. The data processing method of claim 69, wherein said step of determining the price to be charged to defease said liability comprises:

calculating a future value escalation rate based on information concerning at least the current cost of said service or commodity and the projected rate of change of the cost of said service or commodity;

determining, responsive to said calculated future value escalation rate, a present value discount rate by subtracting the future value escalation rate and an insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

discounting, responsive to said determined present value discount rate, the current cost of said service or commodity at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

determining, responsive to said discounted current cost, an aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

71. The data processing method of claim 69 further comprising the steps of:

maintaining an account list of current information for each floating rate zero coupon note account;

maintaining an asset position list of current information concerning a portfolio of investments purchased with funds received from sale of said floating rate zero coupon note and interim investment cash flows;

entering floating rate zero coupon note purchase data and account holder inquiries into a data processing system;

processing periodically said floating rate zero coupon note purchase transaction data to update said account list;

selecting a portfolio of securities and updating said asset position list periodically;

entering the selected security purchase and sale transaction data to update said asset position list;

monitoring periodically the investment performance of the method;

reporting periodically a summary of purchase and redemption transactions, asset and liability positions, and investment performance;

calculating the investment income and taxable income accruing to the holder of a floating rate zero coupon note for each period;

reporting periodically to account holders the status of their accounts and investment income and taxable income earned in their accounts during the period; and

confirming individual transactions and responding to inquiries from account holders.

72. The data processing method of claim 71, wherein said step of selecting a portfolio of securities and updating said asset position list periodically comprises:

determining the schedule of projected floating rate zero coupon note liabilities based on the aggregate maturity schedule for the floating rate zero coupon notes;

determining the amount of funds available for investment based on the amount of cash on hand and the current market value of the investment portfolio; and

responsive to the schedule of projected floating rate zero coupon note liabilities, to the projected cash need for the following period, to amount of funds available for investment, to projected interest rates, to the schedule of yields currently available for investment, to the current composition of the investment portfolio, and to predefined portfolio selection criteria, selecting securities to be purchased or sold.

73. The data processing method of claim 72, wherein said portfolio selecting and updating step further comprises evaluating the effect of the selected purchases or sales on the portfolio, rejecting any selection that would result in a yield on the portfolio that is less than a composite cost of the floating rate zero coupon note liabilities, and rejecting also any selection that would result in a projected income stream for which the income projected for any period is less than the projected floating rate zero coupon note liability for said period.

74. The data processing method of claim 71, wherein said step of periodically reporting a summary of purchase and redemption transactions, asset and liability positions, and investment performance comprises keeping running totals of the numbers of floating rate zero coupon notes of each maturity that are outstanding at each point in time, that were purchased to date during the period, that were redeemed to date during the period, that were purchased during the day, and that were redeemed during the day and running totals of the dollar volume of floating rate zero coupon note redemptions and floating rate zero coupon note purchases for the day and for the period.

75. The data processing method of claim 74, wherein said periodic reporting step further comprises:

calculating the yield on the investment portfolio by determining the internal rate of return of the cash flow stream expected from the investment portfolio; and

calculating the cost of said floating rate zero coupon notes by determining the internal rate of return of the cash flow stream corresponding to the aggregate maturity schedule for the floating rate zero coupon notes.

76. The data processing method of claim 75, wherein said periodic reporting step further comprises converting the yield on the investment portfolio and the cost of the floating rate zero coupon notes to a common basis.

77. The data processing method of claim 76, wherein said common basis is a semi-annual equivalent basis.

78. The data processing method of claim 71, wherein said step of periodically monitoring investment performance of the method comprises calculating the income from the investment portfolio during the period by summing the amount of unrealized appreciation in the value of the investment portfolio during the period, the amount of investment income realized in cash during the period, and the capital gain or loss on securities transactions during the period.

79. The data processing method of claim 78, wherein said periodic monitoring step further comprises:

calculating the average assets under management during the period based on the market value of the investment portfolio at the end of the period and the market value of the investment portfolio at the beginning of the period; and

calculating the return on initial assets, the return on average assets, the cash return on initial assets, and the cash return on average assets.

80. The data processing method of claim 79, wherein said periodic monitoring step further comprises determining whether the system is overfunded or underfunded and the amount of any overfunding or underfunding.

81. The data processing method of claim 71, wherein said step of calculating the amount of investment income and taxable income generated for each floating rate zero coupon note during a period comprises:

calculating the accretion during the period, whether the floating rate zero coupon note was held for the entire period or only for part of it;

determining, responsive to said accretion calculating step, the amount of taxable income for the period; and

calculating the amount of investment income based on the rate of escalation in the cost of the service or commodity during the period and the amount of amortization of the discount or premium during the period.

82. The data processing method of claim 69, wherein said step of determining the price to be charged to defease said liability comprises:

calculating a future value escalation rate based on information concerning at least the current cost of said service or commodity and the projected rate of change of the cost of said service or commodity;

calculating, responsive to said calculated future value escalation rate, the face value of the floating rate zero coupon note by compounding the current cost of the service or commodity over the life of the floating rate zero coupon note at the future value escalation rate;

determining a present value discount rate by subtracting an insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

discounting, responsive to said calculated face value and to said determined present value discount rate, the face value of said floating rate zero coupon note at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

determining, responsive to said discounted face value, an aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

83. A data processing system for administering a program to substantially reduce the uncertainty regarding the cost of a future liability whose projected due date and whose present cost are known but whose future cost is unknown but can be projected with some risk factor, said liability arising from the need to purchase a service or commodity, and thereby for defeasing said liability, said system comprising:

means for determining the price to be charged to defease said liability;

means responsive to the determined price for issuing at said price a floating rate zero coupon note for defeasing said liability, said floating rate zero coupon note having a scheduled maturity date and being redeemable; and

means for determining a redemption value of said floating rate zero coupon note at said scheduled maturity date based on the cost of the service or commodity at said scheduled maturity date.

84. The data processing system of claim 83 wherein, when redemption occurs prior to maturity, said redemption value determining means bases said redemption value additionally on a specified schedule of penalties for early withdrawal.

85. The data processing system of claim 83 wherein said redemption value determining means bases said redemption value additionally on an unamortized discount or premium balance.

86. The data processing system of claim 83 wherein said means for determining the price to be charged to defease said liability comprises:

means for calculating a future value escalation rate based on information concerning at least the projected rate of change of the cost of said service or commodity;

means responsive to said calculated future value escalation rate for determining a present value discount rate by subtracting the future value escalation rate and a non-negative insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

means responsive to said determined present value discount rate for discounting the current cost of said service or commodity at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

means responsive to said discounted current cost for determining an aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

87. The data processing system of claim 83 wherein said means for determining a redemption value of a floating rate zero coupon note comprises:

early redemption determining means for determining whether redemption is being requested prior to the scheduled maturity date for said floating rate zero coupon note;

means responsive to an early redemption determination for calculating an adjusted escalation rate corresponding to each period the floating rate zero coupon note was held, and the rate of escalation of the cost of the service or commodity during that period; and

means responsive to said early redemption determination and to said calculated adjusted escalation rate for escalating the cost of the service or commodity at the floating rate zero coupon note purchase date by the sequence of adjusted escalation rates that correspond to each period the floating rate zero coupon note was held.

88. The data processing system of claim 83 further comprising account list means for storing current information for each floating rate zero coupon note account.

89. The data processing system of claim 88 further comprising means for entering floating rate zero coupon note purchase and redemption transaction data and account holder inquiries.

90. The data processing system of claim 89 further comprising means for processing periodically said floating rate zero coupon note purchase and redemption transaction data to update said account list and to determine the net amount of transactions for the period.

91. The data processing system of claim 83 further comprising means for calculating the investment income and taxable income accruing to the holder of a floating rate zero coupon note each period.

92. A data processing method for administering a program to substantially reduce the uncertainty regarding the cost of a future liability whose projected due date and whose present cost are known but whose future cost is unknown but can be projected with some risk factor, said liability arising from the need to purchase a service or commodity, and thereby to defease said liability, said method comprising the steps of:

determining the price to be charged to defease said liability;

responsive to the determined price, issuing at said price a floating rate zero coupon note for defeasing said liability, said floating rate zero coupon note having a scheduled maturity date and being redeemable; and

determining a redemption value of said floating rate zero coupon note at said scheduled maturity date based on the cost of the service or commodity at said scheduled maturity date.

93. The data processing method of claim 92 wherein said step of determining the price to be charged to defease said liability comprises:

calculating a future value escalation rate based on information concerning at least the projected rate of change of the cost of said service or commodity;

determining, responsive to said calculated future value escalation rate, a present value discount rate by subtracting the future value escalation rate and a non-negative insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

discounting, responsive to said determined present value discount rate, the current cost of said service or commodity at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

determining, responsive to said discounted current cost, an aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

94. The data processing method of claim 92 wherein said step of determining a redemption value of a floating rate zero coupon note comprises:

determining whether redemption is being requested prior to the scheduled maturity date for said floating rate zero coupon note;

responsive to an early redemption determination, calculating an adjusted escalation rate corresponding to each period the floating rate zero coupon note was held, and the rate of escalation of the cost of the service or commodity during that period; and

responsive to said early redemption determination and to said calculated adjusted escalation rate, escalating the cost of the service or commodity at the floating rate zero coupon note purchase date by the sequence of adjusted escalation rates that correspond to each period the floating rate zero coupon note was held.

95. The data processing method of claim 92 further comprising maintaining an account list of current information for each floating rate zero coupon note account.

96. The data processing method of claim 95 further comprising entering floating rate zero coupon note purchase and redemption transaction data and account holder inquiries into a data processing system.

97. The data processing method of claim 96 further comprising processing periodically said floating rate zero coupon note purchase and redemption transaction data to update said account list and to determine the net amount of transactions for the period.

98. The data processing method of claim 92 further comprising calculating the investment income and taxable income accruing to the holder of a floating rate zero coupon note each period.

99. A data processing system for administering a program to substantially reduce the uncertainty regarding the cost of a future liability whose projected due date and whose present cost are known but whose future cost is unknown but can be projected with some risk factor, said liability arising from the need to purchase a service or commodity, and thereby for defeasing said liability at a determined price, said system comprising:

means responsive to the determined price for issuing at said price a floating rate zero coupon note for defeasing said liability, said floating rate zero coupon note having a scheduled maturity date and being redeemable; and

means for determining a redemption value of said floating rate zero coupon note at said scheduled maturity date based on the cost of the service or commodity at said maturity date.

100. The data processing system of claim 99 wherein said means for determining the price to be charged to defease said liability comprises:

means for calculating a future value escalation rate based on information concerning at least the projected rate of change of the cost of said service or commodity;

means responsive to said calculated future value escalation rate for determining a present value discount rate by subtracting the future value escalation rate and a non-negative insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

means responsive to said determined present value discount rate for discounting the current cost of said service or commodity at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

means responsive to said discounted current cost discounting means for determining an aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

101. The data processing system of claim 99 wherein said means for determining a redemption value of a floating rate zero coupon note comprises:

early redemption determining means for determining whether redemption is being requested prior to the scheduled maturity date for said floating rate zero coupon note;

means responsive to an early redemption determination for calculating an adjusted escalation rate corresponding to each period the floating rate zero coupon note was held, and the rate of escalation of the cost of the service or commodity during that period; and

means responsive to said early redemption determination and to said calculated adjusted escalation rate for escalating the cost of the service or commodity at the floating rate zero coupon note purchase date by the sequence of adjusted escalation rates that correspond to each period the floating rate zero coupon note was held.

102. The data processing system of claim 99 further comprising account list means for storing current information for each floating rate zero coupon note account.

103. The data processing system of claim 102 further comprising means for entering floating rate zero coupon note purchase and redemption transaction data and account holder inquiries.

104. The data processing system of claim 103 further comprising means for processing periodically said floating rate zero coupon note purchase and redemption transaction data to update said account list and to determine the net amount of transactions for the period.

105. The data processing system of claim 99 further comprising means for calculating the investment income and taxable income accruing to the holder of a floating rate zero coupon note each period.

106. A data processing method for administering a program to substantially reduce the uncertainty regarding the cost of a future liability whose projected due date and whose present cost are known but whose future cost is unknown but can be projected with some risk factor, said liability arising from the need to purchase a service or commodity, and thereby for defeasing said liability at a determined price, said method comprising the steps of:

responsive to the determined price, issuing at said price a floating rate zero coupon note for defeasing said liability, said floating rate zero coupon note having a scheduled maturity date and being redeemable; and

determining a redemption value of said floating rate zero coupon note at said scheduled maturity date based on the cost of the service or commodity at said maturity date.

107. The data processing method of claim 106 wherein said step of determining the price to be charged to defease said liability comprises:

calculating a future value escalation rate based on information concerning at least the projected rate of change of the cost of said service or commodity;

determining, responsive to said calculated future value escalation rate, a present value discount rate by subtracting the future value escalation rate and a non-negative insurer'"'"'s risk premium rate from the investment yield obtainable upon the investment of funds received from sale of said floating rate zero coupon note and reinvestment of any interim cash flows;

discounting, responsive to said determined present value discount rate, the current cost of said service or commodity at the present value discount rate to determine the price to be charged for said floating rate zero coupon note; and

determining, responsive to said discounted current cost, an aggregate premium or discount as the difference between the price to be charged for the floating rate zero coupon note and the current cost of the service or commodity.

108. The data processing method of claim 106 wherein said step of determining a redemption value of a floating rate zero coupon note comprises:

determining whether redemption is being requested prior to the scheduled maturity date for said floating rate zero coupon note;

responsive to an early redemption determination, calculating an adjusted escalation rate corresponding to each period the floating rate zero coupon note was held, and the rate of escalation of the cost of the service or commodity during that period; and

responsive to said early redemption determination and to said calculated adjusted escalation rate, escalating the cost of the service or commodity at the floating rate zero coupon note purchase date by the sequence of adjusted escalation rates that correspond to each period the floating rate zero coupon note was held.

109. The data processing method of claim 106 further comprising maintaining an account list of current information for each floating rate zero coupon note account.

110. The data processing method of claim 109 further comprising entering floating rate zero coupon note purchase and redemption transaction data and account holder inquiries into a data processing system.

111. The data processing method of claim 110 further comprising processing periodically said floating rate zero coupon note purchase and redemption transaction data to update said account list and to determine the net amount of transactions for the period.

112. The data processing method of claim 106 further comprising calculating the investment income and taxable income accruing to the holder of a floating rate zero coupon note each period.