A pension plan would like to shield its liabilities, due in exactly 3 years, from interest...
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A pension plan would like to shield its liabilities, due in exactly 3 years, from interest rate fluctuations. The current YTM is 10%. The strategies it is considering are: a. Purchase a 10-year bond with 9% coupon rate (hold it for 3 years) b. Purchase a 1-year zero coupon and then roll it over (twice) C. Purchase a 4-year bond with 34.85% coupon (hold it for 3 years) What is the Macaulay duration of each alternative? Which immunizes the portfolio? A pension plan would like to shield its liabilities, due in exactly 3 years, from interest rate fluctuations. The current YTM is 10%. The strategies it is considering are: a. Purchase a 10-year bond with 9% coupon rate (hold it for 3 years) b. Purchase a 1-year zero coupon and then roll it over (twice) C. Purchase a 4-year bond with 34.85% coupon (hold it for 3 years) What is the Macaulay duration of each alternative? Which immunizes the portfolio?
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Calculate the Macaulay duration for each alternative and determine which one immunizes the portfolio ... View the full answer
Related Book For
Modern Advanced Accounting In Canada
ISBN: 9781259066481
7th Edition
Authors: Hilton Murray, Herauf Darrell
Posted Date:
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