Question
A pension fund has an obligation to pay an annuity of $10,000 per year for the next 20 years. The fund has a portfolio of
A pension fund has an obligation to pay an annuity of $10,000 per year for the next 20 years. The fund has a portfolio of assets worth $150,000 with a duration of 5 years. Interest rates are expected to fall by 1% and the current yield curve is as follows:
Maturity (years) | Yield (%) |
---|---|
1 | 2.5 |
2 | 3.0 |
3 | 3.5 |
4 | 4.0 |
5 | 4.5 |
6 | 5.0 |
Calculate the change in the market value of the pension fund's assets and liabilities if interest rates fall by 1%.
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Financial Management for Public Health and Not for Profit Organizations
Authors: Steven A. Finkler, Thad Calabrese
4th edition
133060411, 132805669, 9780133060416, 978-0132805667
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