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Q3: TFIC is expecting three incoming cash flows of $10,000, $20,000, and $30,000 at the end of years 2,3, and 4 respectively. They want to
Q3: TFIC is expecting three incoming cash flows of $10,000, $20,000, and $30,000 at the end of years 2,3, and 4 respectively. They want to immunize these cash flows by creating a portfolio of $X worth of 1 year and $Y worth of 4 year zero coupon bonds. Find $X and $Y so that the present value and duration of the zero coupon bond portfolio matches the present value and duration of the incoming cash flows. (Note: X and Y are the present values, not the face values of the corresponding zero coupon bonds.) PLEASE PROVIDE DETAILED EXPLANATION ALONG WITH THE MATHEMATICAL FORMULA'S USED. THANKS Q3: TFIC is expecting three incoming cash flows of $10,000, $20,000, and $30,000 at the end of years 2,3, and 4 respectively. They want to immunize these cash flows by creating a portfolio of $X worth of 1 year and $Y worth of 4 year zero coupon bonds. Find $X and $Y so that the present value and duration of the zero coupon bond portfolio matches the present value and duration of the incoming cash flows. (Note: X and Y are the present values, not the face values of the corresponding zero coupon bonds.) PLEASE PROVIDE DETAILED EXPLANATION ALONG WITH THE MATHEMATICAL FORMULA'S USED. THANKS
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