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maribelarreolap4sgpj
12.11.2019 •
Business
Apension fund has an average duration of its liabilities equal to 15 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?
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Ответ:
The 52 of its portfolio should be allocated to the zero-coupon bonds to immunie if there are no other assets funding the plan.
Explanation:
the duration of the perpetuity = (1+YTM)/YTM
= (1+0.04)/0.04
= 26 years
the weights of the bonds = w
5*w + 26*(1-w) = 15
5*w + 26 - 26*w = 15
21*w = 11
w = 0.52
Therefore, The 52 of its portfolio should be allocated to the zero-coupon bonds to immunie if there are no other assets funding the plan.
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Explanation: