Question: Question 3 3 ( 1 0 points ) Consider the following cash flow stream: table [ [ Year , 1 , 2 , 3

Question

33 (10

points

)

Consider the following cash flow stream:

\

table

[[

Year

, 1, 2, 3, 4, 5, 6], [

, 250, 200, 140, 180, 240, 150]]

)

Given the current interest rate of

12 %,

calculate the duration for this cash flow stream. How do you interpret the concept "durration"? How is it related to another concept "immunization"?

)

Suppose that you own this stream of cash flows as an investment in fixed

-

income securities

.

How might you hedge this investment against interest rate risk? Illustrate that your hedging strategy does work by calculating the value of your investment at a particular future time point for a few interest rate scenarios, such as the initial interest rate of

12 %,

the interest rate rises to

14 %

or falls to

9 % .

Does your investment have more or less similar value?

$Question 33(10 points) Consider the following cash flow stream: \table[[Year,1,2,3,4,5,6],[CF,250,200,140,180,240,150]] a)$

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