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Consider a UK pension fund that has a 100 million position in a 40-year UK Gilt. This bond has a 1.75% coupon rate, a par
Consider a UK pension fund that has a 100 million position in a 40-year UK Gilt. This bond has a 1.75% coupon rate, a par value of 100, a semi-annual coupon payment frequency and a 1.25% yield. How much would the pension fund lose if the yield on this bond increases by 100 basis points to 2.25%? Explain your answer clearly and comment on the result.
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