5. You work for an insurance company that has just purchased an asset worth $109.9 million given today's annual effective interest rate is 5%. You are given the modified duration of the asset is 13.062. You obtain two values (X and Y) assuming interest rates rise by 2% (to 7%). • Xis an estimate of the asset's value using the first order Macaulay approximation • Y= $85.686 million is the exact value Which of the following is closest to the error ratio X /Y- 1. A) -5% C) +1% E) +10% B) -1% D) +5%
5. You work for an insurance company that has just purchased an asset worth $109.9 million given today's annual effective interest rate is 5%. You are given the modified duration of the asset is 13.062. You obtain two values (X and Y) assuming interest rates rise by 2% (to 7%). • Xis an estimate of the asset's value using the first order Macaulay approximation • Y= $85.686 million is the exact value Which of the following is closest to the error ratio X /Y- 1. A) -5% C) +1% E) +10% B) -1% D) +5%
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:5. You work for an insurance company that has just purchased an asset worth
$109.9 million given today's annual effective interest rate is 5%. You are given
the modified duration of the asset is 13.062. You obtain two values (X and Y)
assuming interest rates rise by 2% (to 7%):
X is an estimate of the asset's value using the first order Macaulay
approximation
• Y = $85.686 million is the exact value
Which of the following is closest to the error ratio X / Y-1.
A) -5%
C) +1%
E) +10%
B) -1%
D) +5%
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