Using a discount rate of 7.5% compounded annually, a pension fund estimates that the present value...

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Using a discount rate of 7.5% compounded annually, a pension fund estimates that the present value of its assets and liabilities are $5 million and $4 million, respectively. The duration of the assets is 5 years and the duration of the liabilities is 23 years. (a) Suppose that the interest rate decreases to 7.39%. Estimate the relative changes in the fund's assets and liabilities. Express yours answers as percentages, to the nearest basis point. Relative Change in Assets ~ % Relative Change in Liabilities % (b) Using your rounded answers from (a), estimate the absolute changes in the fund's assets and liabilities. Express your answers in millions of dollars, to the nearest thousand. Absolute Change in Assets ~ $ million Absolute Change in Liabilities $ million (c) The fund's net worth is defined as the difference between its assets and liabilities. Using your answers from (b), estimate the relative change in the fund's net worth. Express your answer as a percent, to the nearest basis point. Relative Change % Using a discount rate of 7.5% compounded annually, a pension fund estimates that the present value of its assets and liabilities are $5 million and $4 million, respectively. The duration of the assets is 5 years and the duration of the liabilities is 23 years. (a) Suppose that the interest rate decreases to 7.39%. Estimate the relative changes in the fund's assets and liabilities. Express yours answers as percentages, to the nearest basis point. Relative Change in Assets ~ % Relative Change in Liabilities % (b) Using your rounded answers from (a), estimate the absolute changes in the fund's assets and liabilities. Express your answers in millions of dollars, to the nearest thousand. Absolute Change in Assets ~ $ million Absolute Change in Liabilities $ million (c) The fund's net worth is defined as the difference between its assets and liabilities. Using your answers from (b), estimate the relative change in the fund's net worth. Express your answer as a percent, to the nearest basis point. Relative Change %

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Solution This problem requires understanding duration and its impact on present value changes due to ... View the full answer