Suppose a new medicine has been invented that immunizes people from getting cancer. How should this...

Suppose a new medicine has been invented that immunizes people from getting cancer. How should this influence the investment policy (in regard to the duration) of the bond portfolio managers of life insurance companies? Explain.

Expert Solution

If a new medicine has been invented that immunizations people from getting cancer it is a positive for all the insurance company because people will still be buying out on its insurances and people will not fall sick because of the immunization medicine.

It can be adverse for the company also because there will be reduction in the total volume of the company because of more people will not be buying out insurancesinsurances because they think that they are hedged to the most lethal disease

This will lead to the bond portfolio managers of the company to increase the duration for the longer time because sach investment in company is safe because of increase in the overall profit of a company because of this new technique.

On contrast bond yield also may go down a bit because people also discount the decrease in its value due to invention of this new medicine which provides with immunization.

jeff jeffy answered 1 year ago

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