Consider a portfolio which consists of the following two assets: • Asset A: 4-year annuity, paying...
Consider a portfolio which consists of the following two
assets:
• Asset A: 4-year annuity, paying 100 AUD each year.
• Asset B: An asset which pays 200 AUD after the second year and
after the fourth year.
The current interest rate is 10%.
a) Calculate the durations for Asset A and Asset B. b) Calculate
the duration of the portfolio.
c) We want to borrow money with a one-time repayment in 5 years from now. How much can we borrow such that the combination of the asset portfolio and the liability is immune to changes in the interest rate?
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Consider a portfolio which consists of the following two
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