(c) The fund's net worth is defined as the difference between its assets and liabilities. Using your answers from (b), estimate the relative change in the fund's net worth. Express your answer as a percent, to the nearest basis point. Relative Change = 0.35 %
(c) The fund's net worth is defined as the difference between its assets and liabilities. Using your answers from (b), estimate the relative change in the fund's net worth. Express your answer as a percent, to the nearest basis point. Relative Change = 0.35 %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Only c) is incorrect.
Please explain it
![Using a discount rate of 1.5% compounded annually, a pension fund estimates that the present value of its assets and liabilities are $8 million
and $4 million, respectively. The duration of the assets is 14 years and the duration of the liabilities is 25 years.
(a) Suppose that the interest rate decreases to 1.39%. Estimate the relative changes in the fund's assets and liabilities. Express yours answers
as percentages, to the nearest basis point.
Relative Change in Assets a
1.52
%
Relative Change in Liabilities = 2.71
%
(b) Using your rounded answers from (a), estimate the absolute changes in the fund's assets and liabilities. Express your answers in millions of
dollars, to the nearest thousand.
Absolute Change in Assets z $ 0.122
million
Absolute Change in Liabilities $ 0.108
million
(c) The fund's net worth is defined as the difference between its assets and liabilities. Using your answers from (b), estimate the relative change
in the fund's net worth. Express your answer as a percent, to the nearest basis point.
Relative Change 2
0.35
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9f78fccc-b03c-400a-b789-e750d12b815c%2F3d1d4e1e-d564-418a-bfea-2d7c49d655c2%2Fu8uicji_processed.png&w=3840&q=75)
Transcribed Image Text:Using a discount rate of 1.5% compounded annually, a pension fund estimates that the present value of its assets and liabilities are $8 million
and $4 million, respectively. The duration of the assets is 14 years and the duration of the liabilities is 25 years.
(a) Suppose that the interest rate decreases to 1.39%. Estimate the relative changes in the fund's assets and liabilities. Express yours answers
as percentages, to the nearest basis point.
Relative Change in Assets a
1.52
%
Relative Change in Liabilities = 2.71
%
(b) Using your rounded answers from (a), estimate the absolute changes in the fund's assets and liabilities. Express your answers in millions of
dollars, to the nearest thousand.
Absolute Change in Assets z $ 0.122
million
Absolute Change in Liabilities $ 0.108
million
(c) The fund's net worth is defined as the difference between its assets and liabilities. Using your answers from (b), estimate the relative change
in the fund's net worth. Express your answer as a percent, to the nearest basis point.
Relative Change 2
0.35
%
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