Portfolio should it allocate to the zero-coupon bonds

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Reference no: EM131537748

1. A pension fund has an average duration of its liabilities equal to 13 years. The fund is looking at 5-year maturity zero-coupon bonds and 5% 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?

a) 21.00%

b) 38.46%

c) 50.00%

d) 32.82%

2. A bond with a 8-year duration is worth $1,087, and its yield to maturity is 8.7%. If the yield to maturity falls to 8.47%, you would predict that the new value of the bond will be approximately _________.

a) $1,089.50

b) $1,105.37

c) $1,084.50

d) $1,087.00

Reference no: EM131537748

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