SOA Exam FM Sample Question 149
Study guide: Exam FM-2
A railroad company is required to pay 79,860, which is due three years from now. The company invests 15,000 in a bond with modified duration 1.80, and 45,000 in a bond with modified duration D_{mod}, to Redington immunize its position against small changes in the yield rate.
The annual effective yield rate for each of the bonds is 10%.
Calculate D_{mod}.
- A) 2.73
- B) 3.04
- C) 3.34
- D) 3.40
- E) 3.65
Answer this question and see the worked solution
Concepts tested
- Immunization
- Duration
- Bonds
- Portfolio
- Asset-Liability Portfolio
- Duration Matching
- Redington Immunization