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Safelife insurance company has $80 million in assets, $72 million in liabilities, and $8million in shareholders'...

Safelife insurance company has $80 million in assets, $72 million in liabilities, and $8million in shareholders' equity. The duration of liabilities is 8. If Safelife wants to immunize its net worth against interest rate risk (i.e. set the duration of equity equal to zero), what should be the average duration of it's assets?

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Expert Solution

To immunize the portfolio duration weighted assets must equal duration weighted liabilities

Duration of liabilities = 8 * 72 = 576

Duration of Assets = Duration * 80

Duration = 576 /80 = 7.20

jeff jeffy answered 2 years ago
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