Duration question PM

4.5 duration with cash flow matched to rhe first payment? Classical Inmmunization?

I said contengient since he suspect the forcast may be wrong (as the rate be become more favorable)

you guys are absolu-fucking-right. haha,cant agree…anymore

It was a hard question.

said cash flow match since he wasn’t sure of forecast…was scenario 1 so only 1 payment (and wasn’t assurity of payment the first priority, with surplus second or am I imagining that??)

pierovic18 Wrote: ------------------------------------------------------- > 4.5 duration with cash flow matched to rhe first > payment? - Agree > Classical Inmmunization? - I said contingent immunization

4.5 with CF for first payment, definition of combinition(horizon) immunization. contingent immunization

No one here has addressed this: the duration of the liabilities was 5 and 6 (end of year 4 and end of year 5)

I said cash flow matching as well. They were talking about scenario one which ws a sing payment in 4 years. The best way to make sure the money is there is to buy a coupon free tbill with a face value equal to $10 million and expiring in 4 years. To me that would be a cash flow matching strategy since it is only one cash flow. With cont. immun. if rates change suddenly you could miss the target.

I chose cashflow match because the PRIMARY goal was providing for a single liability.

i said cash flow because it felt right, don’t have that much of an explanation for it like you guys seem to have.

L3BeatIt Wrote: ------------------------------------------------------- > I chose cashflow match because the PRIMARY goal > was providing for a single liability. BUT it then said that they wanted the fund at ANY time for the project. can’t have that and cash flow match.

Cash Flow matching is most costly but the best hedging method (because it incurs no immunization risk). The question did not mention about the “cost”, I say Cash Flow mathcing is the “best” without considering cost.

well, slash is right with the 5.5 correct? I dont remember the question, but I definetly took4,5. What a bad trick! does not have to do with knowledge, but with carefull reading.

^ i dont think so, because it was combination immunization. don’t you cash flow match the first payment?

Just checked this in Book 4…combination is duration match AND cash flow match in the earlier years. If the durations were 5 and 6, duration match would have been 5.5.

No, slash is not right. If it’s at the end of year 1, that would be 1 year from now (and a duration of 1), it wouldn’t be 2 years from now. So the end of year 4 would be 4 years from now (duration of 4).

SanFranMatt Wrote: ------------------------------------------------------- > No, slash is not right. If it’s at the end of > year 1, that would be 1 year from now (and a > duration of 1), it wouldn’t be 2 years from now. > So the end of year 4 would be 4 years from now > (duration of 4). Man, I fu cked up. A classic case of over thinking. The thing is I changed 2 answers because of that.

i said duration of 5 and cash flow match first payment for combination matching. if you cash flow match the first payment then the rest of your portfolio has a duration of 5?

Question about cash flow in earlier years and duration. My choices were A) duration 4.5 with cf matched for first payment B) duration 5 with cf matched for first payment C) some other ans that is definitely wrong I went with A. Question about worried about his forecast. He forecasted upward sloping. So the fear is downward sloping, rise in s.t. yields = loss. Cash flow seems safest option to ensure a 10M payout.