Textbook example: if a firm has 3-year investment horizon over which it must earn 3% and it can immunize its asset portfolio at 4.75%, the manager can actively manage part or all of the portfolio until it reaches the safety net rate of return of 3%. Suppose the manager started with $500 million and the YTM suddenly drops to 3.75% , the value of the portfolio will be $541.36 million… My question is: How did they reach the number $541.36 million? Thanks.

has been asked multiple times before and answered.

FV=500, PMT=500*.0475/2 = 11.875, N=20, I/Y=3.75/2

CPT PV=-541.376

Thank you.

Where did the N=20 come from?

10 year bond, so 20 semi annual periods.

cpk, I can’t believe you keep helping everybody on the forum. People are fortunate to have you here.