A Pension Fund Has an Average Duration of Its Liabilities

question 30

Multiple Choice

A pension 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 immunise its interest rate risk. How much of its portfolio should it allocate to the zero coupon bonds to immunise if there are no other assets funding the plan?

• A)52%
• B)48%
• C)33%
• D)25%

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Definitions:

Functional

Related to the purpose or use of something; designed to be practical and useful.

Social Change

Transformations over time in societal norms, behaviors, values, and institutions.

Structural Functionalism

A theory in sociology which posits that society functions as an intricate system where its components interact to foster cohesion and maintain equilibrium.

Center-Periphery Differentiation

Describes the spatial and social division between the developed, politically, and economically dominant 'center' and the less developed, dependent 'periphery'.