Hi David,
Could you kindly have a look at question #8 in the 2016 FRM Part II Practice Exam and tell me whether answer c is truly correct? I think is that surplus change should be
-650*40%-320*1.8%*13 because the bond value will increase as the government cut the interest rate (asset decreases in value and liability increases in value), so a is the closest answer.
At the end of 2014, a pension fund had USD 650 million worth of assets that were fully invested in equities and USD 320 million in fixed-income liabilities with a modified duration of 13. In 2015, the widespread effects of the global energy crisis hit the pension fund, causing its investment in equities to lose 40% of their market value. In addition, the immediate response from the government — cutting interest rates — to salvage the situation, caused bond yields to decline by 1.8%. What was the change in the pension fund’s surplus in 2015?
a. USD -330.00 million
b. USD -245.12 million
c. USD -185.12 million
d. USD -144.88 million
Could you kindly have a look at question #8 in the 2016 FRM Part II Practice Exam and tell me whether answer c is truly correct? I think is that surplus change should be
-650*40%-320*1.8%*13 because the bond value will increase as the government cut the interest rate (asset decreases in value and liability increases in value), so a is the closest answer.
At the end of 2014, a pension fund had USD 650 million worth of assets that were fully invested in equities and USD 320 million in fixed-income liabilities with a modified duration of 13. In 2015, the widespread effects of the global energy crisis hit the pension fund, causing its investment in equities to lose 40% of their market value. In addition, the immediate response from the government — cutting interest rates — to salvage the situation, caused bond yields to decline by 1.8%. What was the change in the pension fund’s surplus in 2015?
a. USD -330.00 million
b. USD -245.12 million
c. USD -185.12 million
d. USD -144.88 million
!
