A pension fund has an average duration of its liabilities equal to 13 years. The fund is looking at 5-year maturity zero-coupon bonds and 5% 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)21.00%

b)38.46%

c)50.00%

d)32.82%

A bond with a 8-year duration is worth $1,087, and its yield to maturity is 8.7%. If the yield to maturity falls to 8.47%, you would predict that the new value of the bond will be approximately _________.

a)$1,089.50

b)$1,105.37

c)$1,084.50

d)$1,087.00