Liability payments of 100 each are due to be paid in 2, 4 and 6 years from now. Asset cashflow consists of A in 1 year and A, in 5 years. The yield for all payments is 10%. An attempt is made to have...

Liability payments of 100 each are due to be paid in 2, 4 and 6<br>years from now. Asset cashflow consists of A in 1 year and A, in<br>5 years. The yield for all payments is 10%. An attempt is made to<br>have the asset cash flow immunize the liability cashflow by<br>matching present value and duration.<br>7.2.7<br>(a) Find A and Ag.<br>(b) Determine whether or not the conditions for Redington<br>immunization are satisfied.<br>

Extracted text: Liability payments of 100 each are due to be paid in 2, 4 and 6 years from now. Asset cashflow consists of A in 1 year and A, in 5 years. The yield for all payments is 10%. An attempt is made to have the asset cash flow immunize the liability cashflow by matching present value and duration. 7.2.7 (a) Find A and Ag. (b) Determine whether or not the conditions for Redington immunization are satisfied.

Answered 97 days AfterJun 04, 2022

Answer To: Liability payments of 100 each are due to be paid in 2, 4 and 6 years from now. Asset cashflow...

Prince answered on Sep 10 2022

77 Votes

Part 1.
Present value of liabilities = 100/(1+10%)2 + 100/(1+10%)4 + 100/(1+10%)6 = 207.393
Duration of liabilities =
(2*100/(1+10%)2 + 4*100/(1+10%)4 + 6*100/(1+10%)6)/207.3934
= 3.747 years
PV of assets = A1/(1+10%)1 + A5/(1+10%)5
PV of assets = PV of liabilities
A1/(1+10%)1 + A5/(1+10%)5 = 207.393............................equ1
Duration of assets = (1*A1/(1+10%)1 + 5*A5/(1+10%)5)/207.393
Duration of Asset = Duration of...

SOLUTION.PDF

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Liability payments of 100 each are due to be paid in 2, 4 and 6 years from now. Asset cashflow consists of A in 1 year and A, in 5 years. The yield for all payments is 10%. An attempt is made to have...

Answer To: Liability payments of 100 each are due to be paid in 2, 4 and 6 years from now. Asset cashflow...

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