A company needs to immunize several future contractual payments up till end of 10 years from...

 

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A company needs to immunize several future contractual payments up till end of 10 years from now. The present value of the future cash flows is $465,000. Annualized money duration is $2,812,500. Convexity is 50. Three immunization bond portfolios as follows are considered. If the company chooses X, what would be the most important differentiating reason? Composition Market value Cash flow yield Money duration Convexity Portfolio X 20% each of 2-,3-,5-,7-10- year notes $467,000 3.62% 2,812,400 52 Portfolio Y 20% 5-year, 20% 7-year, 60% 9-year motes $477,200 3.65% 2,812,600 52 Portfolio Z 50% 2-year, 50% 10- year notes $472,000 3.60% 2,812,550 53 A company needs to immunize several future contractual payments up till end of 10 years from now. The present value of the future cash flows is $465,000. Annualized money duration is $2,812,500. Convexity is 50. Three immunization bond portfolios as follows are considered. If the company chooses X, what would be the most important differentiating reason? Composition Market value Cash flow yield Money duration Convexity Portfolio X 20% each of 2-,3-,5-,7-10- year notes $467,000 3.62% 2,812,400 52 Portfolio Y 20% 5-year, 20% 7-year, 60% 9-year motes $477,200 3.65% 2,812,600 52 Portfolio Z 50% 2-year, 50% 10- year notes $472,000 3.60% 2,812,550 53

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