General Bonds Corp. (GBC) has a pension liability of $100M. The duration of this liability is...

 

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General Bonds Corp. (GBC) has a pension liability of $100M. The duration of this liability is 15 years. On the asset side of its balance-sheet, GBC has a 100% bond portfolio that consists of two bonds: a Treasury bond with duration 2 and a second Treasury bond with duration 20. If GBC's pension board wants to insulate (immunize) the pension fund from day-to-day fluctuations of the interest rate, how much should it invest in the 2 year Treasury and the 20-year Treasury, respectively? General Bonds Corp. (GBC) has a pension liability of $100M. The duration of this liability is 15 years. On the asset side of its balance-sheet, GBC has a 100% bond portfolio that consists of two bonds: a Treasury bond with duration 2 and a second Treasury bond with duration 20. If GBC's pension board wants to insulate (immunize) the pension fund from day-to-day fluctuations of the interest rate, how much should it invest in the 2 year Treasury and the 20-year Treasury, respectively?

Answer rating: 100% (QA)

To immunize the pension fund from daytoday fluctuations of the interest rate the pension board shoul... View the full answer