What is the duration of your equity-duration of your assets

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You run a finance company with $50 million in assets. Your assets include $10 million in cash (with a duration of 0), $15 million in short term investments with a duration of 3, and $25 million in long term investments with a duration of 12. You are financed by $30 million in debt with a duration of 14, and $20 million in equity.

(a) What is the duration of your assets?

(b) What is the duration of your equity?

(c) Based upon your current portfolio, would you prefer for interest rates to increase or decrease? Why?

(d) If you wanted to immunize the value of your equity (set its duration = 0) by adjusting your holdings of long term investments and cash (keeping your short term investments unchanged), how much would you need to have in long term investments to achieve this goal?

Reference no: EM131518794

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