As part of the discussion on immunization strategy, Exhibit 5 presents 3 interest rate scenarios- base case, a 100bp downward shift in the yield curve, and a 100bp upward shift in the yield curve. All 3 of these scenarios sum their respective cash flows to an amount in excess of EUR250mm, which is presented as “more than enough to pay off the EUR250mm liability.”
The problem is that the investment horizon is 6 years, requiring a cash outflow of EUR250mm on 15 FEB 2023. Yet, the sum of the values of the cash flows (as of the horizon date of 15 FEB 2023) is far less than the EUR250mm required. For the base case scenario, the amount as of 15 FEB 2023 sums to ONLY EUR 95,213,665. Exhibit 5 uses the sum of the cash flows as of 15 FEB 2027 to get to the EUR250mm number.
I understand that this bond portfolio was chosen since its Macauly Duration matches the investment time horizon, but I do not understand how the actual “cash-in / cash-out” accounting is structured so that the liability outflow of EUR250mm can be matched with a cash inflow of at least EUR250mm on 15 FEB 2023