31. Duration hedging (S27-7) Securities A, B, and C have the following cash flows: Year 1 Year...

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31. Duration hedging (S27-7) Securities A, B, and C have the following cash flows:

Year 1 Year 2 Year 3 A $ 40 $40 $ 40 B 120 — —

C 10 10 110 Chapter 27 Managing Risk 795

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 hedge this investment against interest rate changes?

c. Now suppose that you have a $10 million investment in B. How would you hedge?

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Principles Of Corporate Finance

ISBN: 9781264080946

14th Edition

Authors: Richard Brealey, Stewart Myers, Franklin Allen, Alex Edmans

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Question Posted: Jul 31, 2024 08:03 AM

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31. Duration hedging (S27-7) Securities A, B, and C have the following cash flows: Year 1 Year...

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