SOA Exam FM Sample Question 106
Study guide: Exam FM-2
A company has liabilities of 573 due at the end of year 2 and 701 due at the end of year 5.
A portfolio comprises two zero-coupon bonds, Bond A and Bond B.
Determine which portfolio produces a Redington immunization of the liabilities using an annual effective interest rate of 7.0%.
- A) Bond A: 1-year, current price 500; Bond B: 6-years, current price 500
- B) Bond A: 1-year, current price 572; Bond B: 6-years, current price 428
- C) Bond A: 3-years, current price 182; Bond B: 4-years, current price 1092
- D) Bond A: 3-years, current price 637; Bond B: 4-years, current price 637
- E) Bond A: 3.5 years, current price 1000; Bond B: Not used
Answer this question and see the worked solution
Concepts tested
- Immunization
- Duration
- Bonds
- Portfolio
- Asset-Liability Portfolio
- Duration Matching
- Redington Immunization
- Convexity