A major requirement in managing a fixed-income portfolio using a contingent immunization policy is monitoring the relationship between the current market value of the portfolio and the required value of the floor portfolio. This difference is defined as the margin of error. In this regard, assume a $300 million portfolio with a time horizon of six years. The available market rate at the initiation of the portfolio 3 10%, but the client is willing to accept 9% as a floor rate to allow use of active management strategies. The current market values and current market rates at the end of years 1, 2, and 3 are as follows: End of Year Market Value (SMI) Market Yield $343.9 11% 402.5 3 401.2 11 Assume that semiannual compounding is used. Do not round Intermediate calculations, Enter your answers in millions. For example, an answer of 51.20 million should be entered as 1.20, not 1,200,000. Round your answers to two decimal places a. Calculate the required ending wealth value for this portfolio $ million b. Calculate the required ending wealth value for this portfolio at the end of Years 1, 2, and 3 End of Year 1:$ million End of Year 2:5 million End of Year 3:5 million Compute the margin of error at the end of Years 1. 2. and 3. End of Years End of Year 25 million End of Year 3: 5 mil d. Indicate the action that a portfolio manager biliring a contingent immunication policy would take it the margin of error at the end of any year had been zera or negative It the margin of error at the end of any year had been aro or negative, the portfolio manager would Select active management of the portfolio and immuniteit A major requirement in managing a fixed-income portfolio using a contingent immunization policy is monitoring the relationship between the current market value of the portfolio and the required value of the floor portfolio. This difference is defined as the margin of error. In this regard, assume a $300 million portfolio with a time horizon of six years. The available market rate at the initiation of the portfolio 3 10%, but the client is willing to accept 9% as a floor rate to allow use of active management strategies. The current market values and current market rates at the end of years 1, 2, and 3 are as follows: End of Year Market Value (SMI) Market Yield $343.9 11% 402.5 3 401.2 11 Assume that semiannual compounding is used. Do not round Intermediate calculations, Enter your answers in millions. For example, an answer of 51.20 million should be entered as 1.20, not 1,200,000. Round your answers to two decimal places a. Calculate the required ending wealth value for this portfolio $ million b. Calculate the required ending wealth value for this portfolio at the end of Years 1, 2, and 3 End of Year 1:$ million End of Year 2:5 million End of Year 3:5 million Compute the margin of error at the end of Years 1. 2. and 3. End of Years End of Year 25 million End of Year 3: 5 mil d. Indicate the action that a portfolio manager biliring a contingent immunication policy would take it the margin of error at the end of any year had been zera or negative It the margin of error at the end of any year had been aro or negative, the portfolio manager would Select active management of the portfolio and immuniteit
