Defined benefit pension plan-find self financing portfolio

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You are the manager of defined benefit pension plan of university of XYZ. Assume plan fund has liability with market value $8 Billion and duration of liability is 12 years. Unfortunately, while the fund has $9 billion in assets largely consisting of bonds, their duration is only 8 years. This means that a steep decline in interest rates may increase present value of obligations by $1 Billion more than such a decline increases the value of fund's assets. While keeping a $1 Billion surplus in pension funds, find a self financing portfolio of 5 year treasury notes with duration of 4 years and 30 year treasury bonds with duration 10 years that will eliminate problem?

Reference no: EM131563464

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