Suppose a Pension Fund Must Have $10,000,000 Five Years from Now

Multiple Choice

Suppose a pension fund must have $10,000,000 five years from now to make required payments to retirees.If the pension wants to guarantee the funds are available regardless of future interest rate changes, it should

A) sell a 5-year duration bond so that it matures with a book value of $10,000,000.
B) sell $10,000,000 face value discount bonds with a duration of five years.
C) purchase 7-year, semi-annual coupon bonds that have a duration of five years.
D) purchase 8-year, annual payment bonds that have a dollar duration of $10,000,000.
E) none of the options since future interest rates are too unpredictable.