A Canadian pension fund manager seeks to measure the sensitivity of her pension liabilities to market interest
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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
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