SOA Exam FM Sample Question 157

Study guide: Exam FM-2

A company owes 1000 one year from now and 1000 two years from now. Which of the following demonstrates a strategy to use exact cash-flow matching between assets and liabilities?

• I. The company purchases a one-year zero-coupon bond and a two-year zero-coupon bond, each with a face amount of 1000.

• II. The company deposits 1859.41 into an account that currently earns an annual effective interest rate of 5% that is subject to change in one year.

• III. The company purchases an asset that has the same duration as the liabilities and a larger convexity.

• A) I only

• B) II only

• C) III only

• D) I, II, and III

• E) The correct answer is not given by (A), (B), (C) or (D).

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Concepts tested

• Immunization
• Duration
• Portfolio
• Asset-Liability Portfolio
• Cash Flow Matching
• Duration Matching
• Redington Immunization
• Convexity

More questions from this set

• SOA Exam FM Sample Question 156
• SOA Exam FM Sample Question 158