# Home Work Essay

2831 Words Jan 7th, 2015 12 Pages
Assignment Print View

http://ezto.mheducation.com/hm_finance.tpx

award:

1.00 point A pension fund has an average duration of its liabilities equal to 14 years. The fund is looking at 5-year maturity zero-coupon bonds and 4% yield perpetuities to immunize its interest rate risk. How much of its portfolio should it allocate to the zero-coupon bonds to immunize if there are no other assets funding the plan? →
57.14% 42.86% 35.71% 26.00% Duration of the perpetuity = 1.04/0.04 = 26 years Duration of the zero = 1 years 14 = (wz)(5) + (1 – wz)26; wz = 57.14% Learning Objective: 11-04 Formulate fixed-income immunization strategies for various investment horizons.

Multiple Choice

Difficulty: 3 Hard

award:

1.00 point You own a
The duration of this bond is ____ years.
7.46

8.43 8.64 7.93

∆P/P = –D*(∆y) –25/1,050 = –D*(0.30%) –2.38% = –D*(0.30%) D* = 7.93 D = D*(1 + y) D = 7.93(1.0630) = 8.430 Learning Objective: 11-02 Compute the duration of bonds; and use duration to measure interest rate sensitivity.

Multiple Choice

Difficulty: 3 Hard

2 of 13

11/29/2014 1:56 PM

Assignment Print View

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award:

1.00 point A perpetuity pays \$100 each and every year forever. The duration of this perpetuity will be __________ if its yield is 8.7%.
8.00 8.70 6.70

→ D=

12.49

1+0.0870 0.0870

= 12.49
Learning Objective: 11-02 Compute the duration of bonds; and use duration to measure interest rate sensitivity.

Multiple Choice

Difficulty: 2 Medium

award:

1.00 point A bond pays annual interest. Its coupon rate is 8.1%. Its value at maturity is \$1,000. It matures in 4 years. Its yield to maturity is currently 5.1%. The duration of this bond is _______ years.
4.00 3.43

3.60 3.20

Time 1 2 3 4

CF \$ 81 \$ 81 \$ 81 \$1,081

PV (CF) @ 6% \$ 77.07 \$ 73.33 \$ 69.77 \$ 885.96 \$1,106.13

wt 0.0696754 0.0662942 0.0630758 0.8009547 1.0000001

t × wt 0.0696754 0.1325884 0.1892274 3.2038188 3.60

Duration = 3.60 Learning Objective: 11-02 Compute the duration of bonds; and use duration to measure interest rate sensitivity.

Multiple Choice

Difficulty: 3 Hard

3

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