1. Pension fund managers can generally best bring about an effective reduction in their interest rate risk by holding ___________________.

a) long-maturity bonds
b)		long-duration bonds
c)		short-maturity bonds
d)		short-duration bonds

2. A pension fund has an average duration of its liabilities equal to 15 years. The fund is looking at 5-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?

a)52%

b)48%

c)33%

d)25%