Question: By hedging a defined benefit pension plan sinterest rate risk a sponsor
“By hedging a defined benefit pension plan’sinterest-rate risk, a sponsor can eliminate pensionrisk.” Comment on this statement.
Answer to relevant QuestionsWhat alternative LDI solution can be used tomanage a defined benefit pension plan instead ofmanaging just interest-rate risk? In explaining how a pension fund should transition to a liability-driven investment strategy, Duane Rocheleau, managing director of Northern Trust's global investment solutions team, writes in "Implementing LDI in Pension ...Suppose that the monthly return for two bond managers is as follows: What is the arithmetic average monthly rate of return for the two managers? Explain the differences between a futures contract and a forward contract. Suppose that a manager wants to reduce the duration of a portfolio. Explain how this can be done using Treasury bond futures contracts.
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