8) (20 pts) At your corporate finance desk, you are asked to hedge a cash-flow...
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8) (20 pts) At your corporate finance desk, you are asked to hedge a cash-flow stream (in $mn) that your company expects to receive over the next 3 years: {10, 20, 30). The interest rate is r = 10% and assume continuous compounding throughout. A) What is the "price" (present value) of this cash-flow stream? B) Determine the PV01, the rate of change of the price for a 1 bp (1/100 of 1%) change in C) Ten-year zero-coupon bonds, with a face value of $1000, are priced at $497. How many would you buy or sell to immunize the cash-flow stream from interest rate risk
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