A pension fund has an obligation to pay an annuity of $10,000 per year for the next
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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 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%.
Expert Answer:
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Related Book For 
Financial Management for Public Health and Not for Profit Organizations
ISBN: 978-0132805667
4th edition
Authors: Steven A. Finkler, Thad Calabrese
Posted Date:
