e) Consider a pension fund whose present value of assets is equal to 150M and the present value of liabilities is equal to 100M. The assets consist of 100M invested in 10-year zero-coupon bonds, where the 10-year zero rate is 5% per annum (continuously compounded), and 50M invested in 2-year zero- coupon bonds, where the 2-year zero rate is 3% per annum (continuously compounded). The duration of the liabilities is equal to 8 years. How much will the pension fund lose if bond yields rise by 10bp? How can the pension func hedge this risk? (8 marks) e) Consider a pension fund whose present value of assets is equal to 150M and the present value of liabilities is equal to 100M. The assets consist of 100M invested in 10-year zero-coupon bonds, where the 10-year zero rate is 5% per annum (continuously compounded), and 50M invested in 2-year zero- coupon bonds, where the 2-year zero rate is 3% per annum (continuously compounded). The duration of the liabilities is equal to 8 years. How much will the pension fund lose if bond yields rise by 10bp? How can the pension func hedge this risk? (8 marks)