a. You are a bond portfolio manager and you are expecting the following cash inflows, the...

 

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a. You are a bond portfolio manager and you are expecting the following cash inflows, the interest rate is 3%. Year Cash Inflow 0 1 5 2 10 3 2 4 70 i. What price would you pay for these cash inflows? What is the duration of these cash flows? [4 marks] ii. You also have an obligation of £87 million at the end of 4 years. What is present value and duration of your obligation? The interest rate is 3% for your obligation as well. [4 marks] iii. Are you able to pay this obligation from the cash inflows you will receive over the next 4 years? Explain the differences in the present valu and duration of your cash inflows and obligations. [2 marks] a. You are a bond portfolio manager and you are expecting the following cash inflows, the interest rate is 3%. Year Cash Inflow 0 1 5 2 10 3 2 4 70 i. What price would you pay for these cash inflows? What is the duration of these cash flows? [4 marks] ii. You also have an obligation of £87 million at the end of 4 years. What is present value and duration of your obligation? The interest rate is 3% for your obligation as well. [4 marks] iii. Are you able to pay this obligation from the cash inflows you will receive over the next 4 years? Explain the differences in the present valu and duration of your cash inflows and obligations. [2 marks]

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