Securities A, B, and C have the following cash flows: Period 1 Period 2 Period 3 A
Question:
Securities A, B, and C have the following cash flows:
Period 1 Period 2 Period 3 A $ 40 $40 $ 40 B $120 — —
C $ 10 $10 $110
a. Calculate their durations if the interest rate is 8%.
b. Suppose that you have an investment of $10 million in A. What combination of B and C would immunize this investment against interest rate changes?
c. Now suppose that you have a $10 million investment in B. How would you immunize?
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