Consider the three cash flow streams of the form (a1, a2, a3) where a; is the...

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Consider the three cash flow streams of the form (a1, a2, a3) where a; is the amount of money in thousands of pounds received at the end of year i for i = 0, 1, 2: x = (2,2,2) y = (a,2,2) z = (2,2, a), where a > 2. Interest is 3% compounded continuously. Order x, y, and z from smallest effective duration to largest effective duration. Justify your answer. Consider the three cash flow streams of the form (a1, a2, a3) where a; is the amount of money in thousands of pounds received at the end of year i for i = 0, 1, 2: x = (2,2,2) y = (a,2,2) z = (2,2, a), where a > 2. Interest is 3% compounded continuously. Order x, y, and z from smallest effective duration to largest effective duration. Justify your answer.

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To compare the effective durations of cash flow streams x y and z we need to calculate the present v... View the full answer