Question

The geometric average of −19%, 40%, and 45% is _________. 34.18% 22.00% 18.03% 16.50% Some answers...

The geometric average of −19%, 40%, and 45% is _________.

34.18%

22.00%

18.03%

16.50%

Some answers said 18.03% and some said 34.18%. i need the right answer 100% please.

A pension fund has an average duration of its liabilities equal to 18 years. The fund is looking at 6-year maturity zero-coupon bonds and 4% yield perpetuities to immunize its interest rate risk. How much of its portfolio should it allocate to the zero-coupon bonds to immunize if there are no other assets funding the plan?

33.33%

26.00%

60.00%

40.00%

which answer 40% or 60%?

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Answer #1

1

Geometric Average = [(1 - 0.19)(1.40)(1.45)]1/3 - 1

Geometric Average = 18.03%

2.

Duration of Zero Coupon Bond = 6

Duration of Perpetuity = 1.04/0.04 = 26

18 = 6w + 26(1 - w)

w = 40%

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