Question: 1 . You manage a pension plan with $ 2 0 0 million in assets that have a duration of 1 0 years and $

1. You manage a pension plan with $200 million in assets that have a duration of 10 years and $150 million in liabilities with a duration of 4 years.
a. Calculate your duration gap
b. Are you hurt if interest rates go up, or if they go down?
c. Suppose you want to execute a macro hedge using T-bond futures contracts traded on the CBOT. Do you want to go short or long?
d. Suppose that the cheapest to deliver bond has a duration of 25.3 years. How many contracts will you short/long if you want to hedge your position as completely as possible?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

Please answer the following questions: Question 1 (1 point) If the pension plan needs to accumulate $1,400,000 million in 7 years, how much must it invest today in an asset that pays an annual...

Q:

Your help counts eith explanation 60 Price (Shour) 10 100 200 300 400 500 600 700 800 900 1000 Quantity (hours/week) 28. The figure above illustrates the demand and supply of Economics 101 tutoring...

Q:

Look at the notes to the Campbell Soup financials in your text or in the module in Canvas. What do the notes say about the inventory cost flow assumptions used? Why do you think this is important...

Q:

Analyzing and Interpreting Pension Disclosures Assume General Mills reports the following pension footnote in its 10-K report. Defined Benefit Pension Plan ($ millions) 2010 2009 Change in Plan...

Q:

) The determination of the net periodic pension expense is a function of five elements. Required: List and briefly describe each of the elements. 2). UniCredit Plc operates a defined benefit plan for...

Q:

1 2 3 4 Failing to manage your time effectively can have some very undesirable consequences: Missed deadlines. Inefficient work flow. Poor work quality. A poor professional reputation and a stalled...

Q:

Intro A corporate pension plan has to pay $27 million every year forever, starting in 12 months. Bonds of all maturities currently yield 8%. You can invest in the following bonds: 1. A coupon bond...

Q:

1 . 1 SEARS CANADA'S BANKRUPTCY AND PENSIONERS Most Canadians expect employers to pronide pensions as one benefit of the employment contract. The expectations include not only coverage but also...

Q:

You manage a pension plan with $100 million in assets that have a duration of 12 years and $200 million in liabilities with a duration of 24 years. Calculate your duration gap Are you hurt if...

Q:

You manage a pension plan with $100 million in assets that have a duration of 12 years and $200 million in liabilities with a duration of 24 years. Calculate your duration gap Are you hurt if...

Q:

Here is an extremely sensitive method for measuring nitrite (NO2-) down to 1 nM in natural waters. The water sample is treated with sulfanilamide and N-(1 naphthylethylenediamine) in acidsolution to...

Q:

Assume in Problem 13 that the property Bob transfers to Robin Corporation is worth $15,000 (basis of $3,000) and that his services in organizing the corporation are worth $165,000. What are the tax...

Q:

Predetermined Overhead Rate, Overhead Application At the beginning of the year, Ilberg Company estimated the following costs: Overhead $416,000 Direct labor cost 520,000 Ilberg uses normal costing...

Q:

Questions Q1. Write a Python program to retrieve the first and last colors from the following list: color_list = ["red", "green", "white", "blue", "black") Q2. Given the following dictionary,...

Q:

=+5. What factors should you consider when choosing a method for distributing a message (other than for systems where you dont have a choice)? [LO-7]

Q:

=+1. Why should you let a first draft age for a while before you begin the revision process? [LO-1]

Q:

=+3. What is parallel construction, and why is it important? [LO-2]