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What is the duration of the fund liability

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Reference no: EM133012579

Question - The Harvard University Fund is a pension fund that expects to pay the people of a total of $1,000,000 6 years from now and a total of $2,000,000 9 years from now.

As manager want to reduce interest rate risk and have two assets for investment at your avail:

- A 30-yr (annual) coupn bnd with 8% annual coupn rate; 10-yr (semi-annual) coupn bnd with 10% annual coupn rate.

Face values of both bonds are USD 1,000. suppose annual yield on both bonds are 7% at the moment.

(a) What is the duration of the fund's liability? What are the durations of these 2 coupon bonds?

(b) How many (in units) of each of the two coupn bonds you need to purchase now to risk-proof Harvard Pension?

Reference no: EM133012579

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