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How to get the DF in year 1,2,3 ? A financial institution has an investment with duration of 2.777 years. The institution finances this investment
How to get the DF in year 1,2,3 ?
A financial institution has an investment with duration of 2.777 years. The institution finances this investment by 8 percent, $1,000, three-year bond that is trading at a yield to maturity of 10 percent. The bond pays interest annually. The treasurer believes that the assets are immunized against interest rate changes. \begin{tabular}{|l|l|l|l|l|} \hline t & CF & DF & CF X DF & CF X DF X t \\ \hline 1 & 80 & 0.909091 & 72.72727 & 72.72727273 \\ \hline 2 & 80 & 0.826446 & 66.1157 & 132.231405 \\ \hline 3 & 1080 & 0.751315 & 811.42 & 2434.259955 \\ \hline Total & & & 950.263 & 2639.218633 \\ \hline & & & & \\ \hline & & & Duration & 2.777356104 \\ \hline \end{tabular}Step by Step Solution
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