Problem 10. You have a portfolio of assets with the following cash flow structure. Time of Payment Amount of Payment 1 1000 10000 15 / 2000 The current force of interest is r = 0.05. (1) (2 points) Compute the Macaulay duration, the Macaulay convexity, and the M for this portfolio. (2) (3 points) Using a two term Taylor expansion (in other words, the formula that involves both D and C) estimate the amount by which the portfolio value will change if the force of interest were to suddenly change to r = 0.042. (3) (2 points) Explain the most important assumptions behind the immunization model and comment how they can be violated in practice. (4) (3 points) Assume that you have a laibility cash flow in the amount of 12,000 payable at time 6. Is it possible to immunize your asset-liability position by selling all of the 1 year bonds that you currently own and adding to your position in 15 year bonds? If so, describe what you would do. Problem 10. You have a portfolio of assets with the following cash flow structure. Time of Payment Amount of Payment 1 1000 10000 15 / 2000 The current force of interest is r = 0.05. (1) (2 points) Compute the Macaulay duration, the Macaulay convexity, and the M for this portfolio. (2) (3 points) Using a two term Taylor expansion (in other words, the formula that involves both D and C) estimate the amount by which the portfolio value will change if the force of interest were to suddenly change to r = 0.042. (3) (2 points) Explain the most important assumptions behind the immunization model and comment how they can be violated in practice. (4) (3 points) Assume that you have a laibility cash flow in the amount of 12,000 payable at time 6. Is it possible to immunize your asset-liability position by selling all of the 1 year bonds that you currently own and adding to your position in 15 year bonds? If so, describe what you would do