User Account

All Pages

Compute the duration and convexity of the two bonds

Assignment Help Finance Basics
Reference no: EM133115110

Suppose that pension fund PNG has $3.8B in estimated liabilities with duration D = 16 and convexity C = 310 (with respect to BEY). (Note that these are liabilities, and therefore the actual duration and convexity faced by PNG have the opposite sign, i.e., they are negative.)
PNG is considering investing in a 30-year 3.10%-coupon bond with yield to maturity 3.40% and a 10-year 4.00%-coupon bond with yield to maturity 2.60%.

a) Compute the duration and convexity of the two bonds.

b) What position in the 30-year bond (and a money-market account) immunizes PNG's liabilities?

c) What is the dollar convexity of immunized position computed as immediately above?

d) What positions in the two bonds neutralize both the duration and convexity of PNG's liabilities? [This means that you should find the dollar amount invested in each of the two bonds so that, in combination with original liabilities, the overall portfolio has both zero dollar duration and zero dollar convexity.] [Make sure that the signs of the positions, i.e., long or short, are clear.]

Reference no: EM133115110

Questions Cloud

Determine cash-basis net income and accrual-basis net income : At the end of the year, Rebel owes salaries of $2000. Determine cash-basis net income and accrual-basis net income for the year
Different types of personal financial counseling : How do you define the three different types of personal financial counseling (remedial, productive and preventative)?
What would be its departure time from frankfurt : What would be its departure time from Frankfurt? Use your resources to find the time difference between the two cities
What is the required return for security : You are considering two stocks. The beta of A is 1.4. The firm offers a dividend yield during the year of 4 percent and a growth rate of 8 percent. The beta of
Compute the duration and convexity of the two bonds : Suppose that pension fund PNG has $3.8B in estimated liabilities with duration D = 16 and convexity C = 310 (with respect to BEY). (Note that these are liabilit
Prepare a revenues budget for price inc : Average selling prices are estimated at $0.20 per 12-ounce bottle and $1.50 per 1-gallon container. Prepare a revenues budget for Price, Inc.
Portfolio weights for the minimum risk premium portfolio : In a hypothetical world of 4 assets with the following information below. Assume no restrictions on short sales.
Impact of social media on marketing : How will the information from this research paper is deemed suitable and relevant to your group research?
What is the discount yield on the stated treasury bill : 1) A short-term debt security with a face value of $38,316 and 55 days to maturity has a discount yield of 4.25 percent. How much would the security sell for to

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd