Symmetric cash matching, Financial Management

Assignment Help:

We have earlier studied that the investor may have to carry cash for some time because of discrepancies arising between the timing of the bond's cash-flow and the liability. Suppose we assume that he can borrow for a short time period, then he can depend on cash flow occurring after a liability to cover it. Constructing a bond portfolio with cash-flow around rather than prior to the maturities of the liabilities is less restrictive. Hence it should be easier and cheaper. This strategy is based on the assumption of cost of borrowing cash. If the cost is actually higher than the assumed cost, then the risk of being short to fund the liabilities may arise.

Callable bonds must be avoided as they may bring in uncertainty in the bond portfolio cash flow.

Excluding default risk.

Assume a 10% discount rate with respect to both the bonds.


Related Discussions:- Symmetric cash matching

Share price, what course a decrease and increase in share price

what course a decrease and increase in share price

Explaqin advantage of any available cash discounts, Assume that you have be...

Assume that you have been consistently impressed by David and Tom Gardner of The Motley Fool since you first heard of their rather improbable rise to prominence in financial circ

Working Capital Management, The management of Nelson plc wish to estimate t...

The management of Nelson plc wish to estimate their firm’s equity beta. Nelson has had a stock market quotation for only two months and the financial management feels that it would

Break even period, It is also important to compare the returns from t...

It is also important to compare the returns from the equity stock and the bond to determine the profitability of both investments. We have seen above that the div

Describes the techniques of work breakdown structure, Due to the complexity...

Due to the complexity of the tasks involved in many projects, communication of responsibility for those tasks is often helped by means of graphical planning techniques.

Brief of volatility of interest rate, Historically, three types o...

Historically, three types of shapes have been observed for the yield curve. The relative change in the yield for each treasury maturity is known as a

What number of seats generates that maximum revenue, Q. In planning a resta...

Q. In planning a restaurant, it is estimated that a revenue of $6 per seat will be realized if the number of seats is at most 50. On the other hand, the revenue on each seat will d

What is estate tax, Q. What is Estate Tax? Estate Tax - Tax on the valu...

Q. What is Estate Tax? Estate Tax - Tax on the value of a DECENDENT'S taxable estate, usually defined as the decedent's ASSETS less LIABILITIES and certain expenses that may in

Setting budget goals and objectives, Setting Budget Goals and Objectives: ...

Setting Budget Goals and Objectives: Having collected and analysed all relevant information, and made general forecasts as to the key areas of concern / opportunity and special

Write Your Message!

Captcha
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!

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