Answer the following questions assuming that at the initiation of an investment account, the market value of your portfolio is $200 million, and you immunize the portfolio at 12 percent for six years. During the first year, interest rates are constant at 12 percent.
a. What is the market value of the portfolio at the end of Year 1?
b. Immediately after the end of the year, interest rates decline to 10 percent. Estimate the new value of the portfolio, assuming you did the required rebalancing (use only modified duration).

  • CreatedDecember 17, 2014
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