Asked by Viraj Mistry on Jun 26, 2024
Verified
A pension fund must pay out $1 million next year, $2 million the following year, and then $3 million the year after that. If the discount rate is 8%, what is the duration of this set of payments?
A) 2 years
B) 2.15 years
C) 2.29 years
D) 2.53 years
Discount Rate
The interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window.
Duration
Duration measures a bond's sensitivity to changes in interest rates, representing the weighted average time to receive the bond's cash flows.
Payments
Transactions or transfers of money from one person or entity to another.
- Ascertain the functions of duration in immunization strategy creation and interest rate risk mitigation.
Verified Answer
TI
Learning Objectives
- Ascertain the functions of duration in immunization strategy creation and interest rate risk mitigation.