Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 2. cash flow matching vs. immunization a pension m

2. Cash flow matching vs. Immunization A pension manager must fund a series of payments....

70.2K

Verified Solution

Question

Finance

image

2. Cash flow matching vs. Immunization A pension manager must fund a series of payments. The payments and the prices of zero coupon bonds associated with the same dates are: Date (Years) Payment 0.5 1.0 1.5 2.0 1000 1200 2500 1500 Zero Price (%) 99.50 98.00 97.00 96.00 (a) Compute the present value of the pension fund's liabilities, by setting up a portfolio of zero coupon bonds that delivers exactly the cash flows required, and calculating its price. (b) Use the durations of the zeros to compute the duration of the matching portfolio, and hence of the liabilities. (c) Suppose the pension manager decided to fund the payments using a combination of only 0.5- and 2-year zeros. What combination of these two instruments has the same value and duration as the fund's liabilities? (d) Assume now the 2-year continuously compounded spot rate rises to 3%, while the other spot rates are unchanged. Which of the two portfolios would suffer more from the increase in this rate: the cash-flow matched portfolio (obtained in (a)) or the duration-matched portfolio (obtained in (c)) Compute the new values of the two portfolios

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Basic Math
1.2K views

Define the basic concept of channel coding, and enumerate two types of channel coding?

Physics
1.2K views

How is Q-point defined in a bipolar transistor?

Accounting
1.2K views

Rowland Company is a small editorial services company owned and operated by Marlene Rowland. On August...

Biology
1.2K views

2 A plasmid was digested with the enzyme NotI On agarose gel electrophoresis you observe...

Physics
1.2K views

An AC source with a maximum voltage of 125 V and F 55 0 Hz...

Physics
1.2K views

22 Neglecting the currents taken by the voltmeters V and V calculate a total current...

Statistics
1.2K views

Determine the two values of z such that the middle 28 of the data lie...

Algebra
1.2K views

2 What is the domain and range for the function graphed below 5 2 1...

Algebra
1.2K views

6 6 Graphing LINCO Graph the equation using the slope and the y in 3x...

Accounting
1.2K views

Bond Premium, Entries for Bonds Payable Transactions Rodgers Corporation produces and sells football equipment. On...

Accounting
1.2K views

Easton Company y Lofton Company se combinaron en una transaccin de compra. Easton pudo adquirir...

Accounting
1.2K views

Reliable Cars has sales of $3,740, total assets of $3,150, and a profit margin of...