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Randy currently has an obligation that he will pay $1 million a year for the next...

Randy currently has an obligation that he will pay $1 million a year for the next 3 years, what is the duration of his obligation if the appropriate discount rate is 5%?

If Randy wants to immunize his obligation using a 1-year zero coupon bond and a perpetuity both yielding 6%. I rounded the durations to two decimal places to minimize rounding errors.

What is the weight he should invest in the zero?

What is the weight he should invest in the perpetuity?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

I HAVE TAKEN DURATION TO 4 DECIMALS SO THAT ACCURATE ANSWER CAN BE ARRIVED AT. THANK YOU

IF YOU STILL WANT ME TO CHANGE TO DURATION TO 2 DECIMALS AND CALCULATE, WILL DO THAT ALSO

jeff jeffy answered 1 year ago
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