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Your liabilities have a market value of $1,120,000 and a duration of 7.5. You want to immunize your position by constructing a portfolio of two assets below that has the same market value and duration as your liabilities.
Asset 1
Market Value 600
Duration10
Asset 2
Market Value 200
Duration3
a. Write down equations that determine the number of units of each asset in the portfolio. Use notation N1 and N2 to represent the number of units of asset #1 and #2, respectively.
b. Solve the equations for N1 and N2.
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The stock redemption does not qualify for sale or exchange treatment.
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