A Canadian pension fund manager seeks to measure the sensitivity of her pension liabilities to market interest
Question:
A Canadian pension fund manager seeks to measure the sensitivity of her pension liabilities to market interest rate changes. The manager determines the present value of the liabilities under three interest rate scenarios: a base rate of 7%, a 100 basis point increase in rates up to 8%, and a 100 basis point drop in rates down to 6%. The results of the manager’s analysis are presented below:
The effective duration of the pension fund’s liabilities is closest to:
A. 1.49.
B. 14.99.
C. 29.97.
Transcribed Image Text:
Interest Rate Assumption 6% 7% 8% Present Value of Liabilities CAD510.1 million CAD455.4 million CAD373.6 million
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 100% (QA)
The effective duration of a bond is a measure of its price sensitivity to changes in interest rates ...View the full answer
Answered By
JAPHETH KOGEI
Hi there. I'm here to assist you to score the highest marks on your assignments and homework. My areas of specialisation are:
Auditing, Financial Accounting, Macroeconomics, Monetary-economics, Business-administration, Advanced-accounting, Corporate Finance, Professional-accounting-ethics, Corporate governance, Financial-risk-analysis, Financial-budgeting, Corporate-social-responsibility, Statistics, Business management, logic, Critical thinking,
So, I look forward to helping you solve your academic problem.
I enjoy teaching and tutoring university and high school students. During my free time, I also read books on motivation, leadership, comedy, emotional intelligence, critical thinking, nature, human nature, innovation, persuasion, performance, negotiations, goals, power, time management, wealth, debates, sales, and finance. Additionally, I am a panellist on an FM radio program on Sunday mornings where we discuss current affairs.
I travel three times a year either to the USA, Europe and around Africa.
As a university student in the USA, I enjoyed interacting with people from different cultures and ethnic groups. Together with friends, we travelled widely in the USA and in Europe (UK, France, Denmark, Germany, Turkey, etc).
So, I look forward to tutoring you. I believe that it will be exciting to meet them.
3.00+
2+ Reviews
10+ Question Solved
Related Book For
Question Posted:
Students also viewed these Business questions
-
Defined-benefit pension schemes typically pay retirees a monthly amount based on their wage level at the time of retirement. The amount could be fixed in nominal terms or indexed to inflation. These...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
In Problem, p is the price per unit in dollars and q is the number of units. If the weekly demand function is p = 30 - q and the supply function before taxation is p = 6 + 2q, what tax per item will...
-
If the calendar should not dictate reporting frequency, what should?
-
If rp is positive in Equation 14.9, then foreign assets are perceived as being more risky than domestic counterparts. In that case, according to Equation 14.9, what will happen to the exchange rate...
-
The three commonly used temperature scales are (a) Fahrenheit, Celsius and Rankine (b) Fahrenheit, Celsius and Kelvin (c) Fahrenheit, Rankine and Kelvin (d) Celsius, Rankine and Kelvin.
-
Part A The partnership of Wingler, Norris, Rodgers, and Guthrie was formed several years ago as a local architectural firm. Several partners have recently undergone personal financial problems and...
-
Gold Star Rice, Limited, of Thailand exports Thai rice throughout Asia. The company grows three varieties of rice-White, Fragrant, and Loonzain. Budgeted sales by product and in total for the coming...
-
Which of the following statements about Macaulay duration is correct? A. A bonds coupon rate and Macaulay duration are positively related. B. A bonds Macaulay duration is inversely related to its...
-
Which of the following is most appropriate for measuring a bonds sensitivity to shaping risk? A. Key rate duration B. Effective duration C. Modified duration
-
A group of 17 students participated in an evaluation of a special training session that claimed to improve memory. The students were randomly assigned to two groups: group A, the test group, and...
-
The Euclidean norm of an n-dimensional vector is defined as function [z] = = 72 Write a Matlab function compute Euclidean_norm.m that computes the norm (2), for an arbitrary input vector . The...
-
(a) Let A = {1,2,3,4}, B = {3kk e Z-{-1,1}} and C = {ne Zn+n = 0}. Which one of the following statements is True? Explain your answer i. AnB = 0 ii. B-C=0 iii. BnC = 0 iv. AUC =0 (b) Let A and B be...
-
tnem The number can be defined as a limit of various converging series of numbers. Among 12 4 16k 8k+1 7-8 = lim k=0 Pn+1 = 71 1 2 8k + 4 k=0 = 6, lim 71-00 En = 6 1 8k+ 5 72 Write a Matlab function...
-
D-Solar is a retailer of solar panels. The demand in Canada in the previous year was 100,000 panels. There are two suppliers that can provide one of the required products. One of the suppliers is...
-
Brian is about to take early retirement at the age of 45. His current wealth is $2 million and he plans to use this wealth to fund his consumption over the remaining three periods of his life. Any...
-
Bethany Link delivers parts for several local auto parts stores. She charges clients $0.75 per mile driven. She has determined that if she drives 2,100 miles in a month, her average operating cost is...
-
How has the globalization of firms affected the diversity of their employees? Why has increased diversity put an additional burden on accounting systems?
-
The market portfolio has an expected return of 11 percent and a standard deviation of 19 percent. The risk-free rate is 3.2 percent. a. What is the expected return on a well-diversified portfolio...
-
A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 12 percent. The risk-free rate is 2.7 percent, and the expected...
-
Suppose the risk-free rate is 2.1 percent and the market portfolio has an expected return of 10.6 percent. The market portfolio has a variance of .0432. Portfolio Z has a correlation coefficient with...
-
Problem 1. Three vessels have different shapes, but the area of their bottom surface is the same, and all three are filled with water with the same depth (Fig. 1). Rank the magnitudes of the net...
-
As a laudably skeptical physics student, you want to test Coulomb's law. For this purpose, you set up a measurement in which a proton and an electron are situated 903 nm from each other and you study...
-
Activity 1: The Components of a Vector Rx = Ax+ Bx Open the Vector Addition simulation (https://phet.colorado.edu/en/simulation/vector-addition) and select the Explore 2D screen. The a few minutes to...
Study smarter with the SolutionInn App