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29. (2 points) A pension fund's present value of liability is $29 million (also equals its present value of asset) and the duration of liability
29. (2 points) A pension fund's present value of liability is $29 million (also equals its present value of asset) and the duration of liability is 15 years. The pension fund constructs a portfolio p which allocates 1 share of its wealth on 1-year zero coupon bond (1yr ZCB ) and the remaining wealth on 30 -year zero coupon bond (30yr ZCB). Suppose this portfolio p incorporates 50,000 shares of 1yrZCB, and it successfully hedges interest rate risk for the pension fund (i.e. immunization is realized), then what is approximately the current yield of 1yr ZCB? (suppose the ZCB has face value as \$500) A. 55.8% B. 66.7% C. 11.8% D. 30.9%
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