Question

A pension-debt fund with a 7 year liability horizon invests in a mix of 4-year and 10-year bonds, leading to overall portfolio duration of 8 years. What should the fund manager do to align with liabilities?

Q: Answer-A pension-debt fund with a 7 year liability horizon invests in a mix of 4-year and 10-year bonds, le...

With asset duration exceeding liability duration, the fund is overexposed to rate changes. The optimal solution is to use interest rate swaps to shorten effective duration and realign with liability.

A Buy more 10-year bonds

B Sell 10-year and buy 4-year bonds

C Buy interest rate futures

D Use interest rate swaps to reduce duration

E Do nothing

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A pension-debt fund with a 7 year liability horizon invests in a mix of 4-year and 10-year bonds, leading to overall portfolio duration of 8 years. What should the fund manager do to align with liabilities?

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