Liability payments consists of 1000 at the end of 1 year, 2000 at the end of 2 years, and 3000 at the end of 3 years. At an annual
effective interest rate of 8%, the asset payments of B0 at time t = 0 and B2 at time t = 2 are chosen so that the present value of
the asset cash flows match the present value of the liability cash flows and the duration of the asset cash flows match the duration
of the liability cash flows.
a) Compute B0 and B2.
b) Determine if the assets immunize the liabilities.

Answer rating: 100% (QA)

a B0 1000 100 100 8 1000 100 108 B0 925925 B2 2000 ... View the full answer