Clarke Pearson
02/22/2023 · High School

\[ V_{A}^{\prime \prime}\left(j_{0}\right)>V_{L}^{\prime \prime}\left(i_{0}\right) \] Question A fund must make payments of \( £ 50,000 \) at time 6 years and at time 8 vears. Interest rates are currently \( 7 \% \) pa effective at all durations. how that immunisation against small changes in the interest rate can be achieved by purchasing ppropriately chosen nominal amounts of a 5 -year zero-coupon bond and a 10-year zero-coupon ond.

UpStudy ThothAI Solution

Tutor-Verified Answer

Quick Answer

To achieve immunization against small changes in interest rates, match the present value of liabilities with the present value of assets and their durations. Use a 5-year and a 10-year zero-coupon bond to match the liabilities' cash flows and duration. Calculate the present value of liabilities, duration, and then determine the appropriate nominal amounts to invest in the zero-coupon bonds to align the present value and duration of assets with liabilities.

Step-by-step Solution

Elevate Your Learning
Unlock full answers and more with UpStudy Premium
Get AI Assistant
Answered by UpStudy AI and reviewed by a Professional Tutor
UpStudy ThothAI
Self-Developed and Ever-Improving
Thoth AI product is constantly being upgraded and optimized.
Covers All Major Subjects
Capable of handling homework in math, chemistry, biology, physics, and more.
Instant and Accurate
Provides immediate and precise solutions and guidance.
Try Now
Ask Tutors
Ask AI
10x
Fastest way to Get Answers & Solutions
By text

Enter your question here…

By image
Re-Upload
Uploaded Files
xxxx.png0%
Submit
📸 STUDY CAN BE A REAL STRUGGLE
Why Not UpStudy It?
Select your plan below
Premium

You can enjoy

  • Step-by-step explanations
  • 24/7 expert live tutors
  • Unlimited number of questions
  • No interruptions
  • Full access to answer and
    solution
  • Full Access to PDF Chat, UpStudy Chat, Browsing Chat
Basic
  • Limited Solutions