Problem
Immunization is a risk-mitigation strategy that matches asset and liability duration, so portfolio values are protected against interest rate changes. It is widely used by pension funds, insurance companies, and banks. Use this idea to solve the following problems: The pension plan will pay you $10,000 every two-year (or end of every 2 years) for a total of five payments. The first payment will come in exactly 5 years. The pension fund wants to immunize its position. What is the duration of pension fund obligation? The current market interest rate is 10% per year.