1. A pension fund has an average duration of its liabilities equal to 13 years. The fund is looking at 5-year maturity zero-coupon bonds and 5% yield perpetuities to immunize its interest rate risk. How much of its portfolio should it allocate to the zero-coupon bonds to immunize if there are no other assets funding the plan?
a) 21.00%
b) 38.46%
c) 50.00%
d) 32.82%
2. A bond with a 8-year duration is worth $1,087, and its yield to maturity is 8.7%. If the yield to maturity falls to 8.47%, you would predict that the new value of the bond will be approximately _________.
a) $1,089.50
b) $1,105.37
c) $1,084.50
d) $1,087.00