Duration

Discussion in 'SP4' started by Rahul-Ahuja, Feb 4, 2014.

  1. Rahul-Ahuja

    Rahul-Ahuja Member

    How is duration used to determine valuation discount rate in retirement benefit schemes?
     
  2. Gresham Arnold

    Gresham Arnold ActEd Tutor Staff Member

    Hi!

    Let's suppose that you are going to use a single discount rate for your valuation and that you want to base it on the yield of a bond.

    You might assess the duration of the pension scheme's liabilities and then base your discount rate on the yield of a bond of a similar duration (on the grounds that this bond would probably be a better match for your liabilities than a bond of longer or shorter duration).

    Best wishes

    Gresham
     

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