NO.PZ201812020100001201
问题如下：
Recommend
the portfolio in Exhibit 1 that would best achieve the immunization.
Justify your response
选项：
解释：
Answer
Justification:
Portfolio
A is the most appropriate portfolio because it is the only one that satisfies
the three criteria for immunizing a single future outflow (liability), given
that the cash flow yields are sufficiently close in value:
1.
Market Value: Portfolio A’s initial market
value of $235,727 exceeds the outflow’s present value of $234,535. Portfolio B
is not appropriate because its market value of $233,428 is less than the
present value of the future outflow of $234,535. A bond portfolio structured to
immunize a single liability must have an initial market value that equals or exceeds
the present value of the liability.
2.
Macaulay Duration: Portfolio A’s Macaulay
duration of 9.998 closely matches the 10-year horizon of the outflow. Portfolio
C is not appropriate because its Macaulay duration of 9.503 is furthest away
from the investment horizon of 10 years.
3.
Convexity: Although Portfolio C has the
lowest convexity at 108.091, its Macaulay duration does not closely match the
outflow amount. Of the remaining two portfolios, Portfolio A has the lower
convexity at 119.055; this lower convexity will minimize structural risk.
Default risk (credit risk) is not considered because the portfolios consist of
government bonds that presumably have default probabilities approaching zero.
Default
risk (credit risk) is not considered because the portfolios consist of
government bonds that presumably have default probabilities approaching zero.
portfolio A is the best.
- the MV of immunization portfolio should be more or equal to the present value of liability(234535). so the portfolio B(MV=233428,whcih is less than 234535) is excluded.
- the mac duration of immunization portfolio should almost equal to the mac duration of liability(10) . however the mac duration of portfolio C is 9.503, which is farest away form the mac duration of liability(10) . so portfolio C is excluded.
- the the MV of portfolio A is 235727,which is more the present value of liability(234535). and the mac duration is 9.998, which is almost equal to mac duration of liability(10). also the convexity of portfolio A si modest. so portfolio A is the best.
