A B C Year 1 $43 123 13 Year 2 $ 43 13 Year 3 $ 43 113 a. Calculate their durations if the interest rate is 7%. b. Suppose that you have an investment of $10.3 million in A. What combination of B and C w against interest rate changes? c. Now suppose that you have a $10.3 million investment in B. How would you hedge? Complete this question by entering your answers in the tabs below.
A B C Year 1 $43 123 13 Year 2 $ 43 13 Year 3 $ 43 113 a. Calculate their durations if the interest rate is 7%. b. Suppose that you have an investment of $10.3 million in A. What combination of B and C w against interest rate changes? c. Now suppose that you have a $10.3 million investment in B. How would you hedge? Complete this question by entering your answers in the tabs below.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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
Transcribed Image Text:Securities A, B, and C have the following cash flows: (Ignore taxes)
ADC
А
B
с
Year 1
$ 43
123
13
Year 2 Year 3
$ 43
$ 43
13
a. Calculate their durations if the interest rate is 7%.
b. Suppose that you have an investment of $10.3 million in A. What combination of B and C would hedge this investment
against interest rate changes?
c. Now suppose that you have a $10.3 million investment in B. How would you hedge?
113
Complete this question by entering your answers in the tabs below.
Securities
A
с
Required A Required B Required C
Now suppose that you have a $10.3 million investment in B. How would you hedge?
Note: Enter your numeric answers as a positive value. Do not round intermediate calculations. Enter your numeric answers in
millions rounded to 3 decimal places.
Position
Short position
Long position
Amount
million
million
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