MidtermOne_Fall2009

MidtermOne_Fall2009 - ACTUARIAL SCIENCE 445/845: Asset...

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ACTUARIAL SCIENCE 445/845: Asset Liability Management Midterm One - Fall 2009 Aids: Calculator, Answer all questions in the space provided. Show your work. Name: ____________________ Marks: _____________________/40 ID#: _____________________ Course (445 or 845):___________ Concept Questions 1. [6 marks] Aside from interest rate risk, fixed income securities face numerous other sources of risk. State and briefly explain three of these additional sources of risk. 2. [6 marks] State and briefly explain three shortcomings of duration as a measure of interest rate risk.
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Problems: 3.[10 marks] The term structure of interest rates is flat, with all yields equal to 6% per annum (expressed in annual compounding). An insurance company faces a liability of $100,000 due in four years, and another liability of $200,000 due in seven years. The company will hedge these liabilities with assets consisting of a two year zero coupon bond and a ten year zero coupon bond. Determine how much must be invested in each of
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MidtermOne_Fall2009 - ACTUARIAL SCIENCE 445/845: Asset...

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