Tran's company is required to pay a liability of 79860 three years from now. Using the...
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Tran's company is required to pay a liability of 79860 three years from now. Using the strategy of immunization, Tran invests (right now at time 0) 15000 in a bond which has an annual modified- duration of 1.80 along with another investment (right now at time 0) of 45000 in a bond which has an annual modified-duration of K (where K > 0). Assuming an annual effective yield rate of 10%, find K so that the portfolio is immunized. Give your answer as a decimal rounded to two places (i.e. X.XX). Note: Recall the definition of modified-duration or volatility: v A'(i) where A(i) is the present value. A(i) Remember that the negative sign is dropped when the value is written, so you will want to account for this when doing your computations. Tran's company is required to pay a liability of 79860 three years from now. Using the strategy of immunization, Tran invests (right now at time 0) 15000 in a bond which has an annual modified- duration of 1.80 along with another investment (right now at time 0) of 45000 in a bond which has an annual modified-duration of K (where K > 0). Assuming an annual effective yield rate of 10%, find K so that the portfolio is immunized. Give your answer as a decimal rounded to two places (i.e. X.XX). Note: Recall the definition of modified-duration or volatility: v A'(i) where A(i) is the present value. A(i) Remember that the negative sign is dropped when the value is written, so you will want to account for this when doing your computations.
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