Assess the asset composition of the company

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As a consultant to an insurance company, you have been asked to assess the asset composition of the company.

a. The insurance company has recently sold a large amount of bonds and invested the proceeds in real estate. Its logic was that this would reduce the exposure of the assets to interest rate risk. Do you agree?

Explain.

b. This insurance company currently has a small amount of stock. The company expects that it will need to liquidate some of its assets soon to make payments to beneficiaries. Should it shift its bond holdings (with short terms remaining until maturity) into stock in order to strive for a higher rate of return before it needs to liquidate this investment?

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Reference no: EM132533865

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