The Excel file Portfolio Bond Immunization Data contains information about three bonds. Use this data to:Compute the amount to be invested to meet the future liability noted in the data. This future liability is due in 10 years.Find a combination of Bond 1 and Bond 2 having a target duration of 10 years.Find a combination of Bond 1 and Bond 3 having a target duration of 10 years.Perform an analysis using a data table and an accompanying graph to determine which of the following options (i.e., a portfolio consisting of Bond 1 and Bond 2, a portfolio consisting of Bond 1 and Bond 3, or a portfolio consisting of Bond 2) would be preferred to attempt to immunize this obligation.Construct a data table by varying the yield to maturity that shows the value of each option at the end of 10 years. Use yield to maturity values ranging from 0% to 15% in 1% increments.Based on your data table, construct a graph that demonstrates the performance of these 3 options.Analyze each option’s performance in attempting to achieve immunization. 2Yield to maturity (Expected/Current)8%3Number of Years to Future Liability410.00Future Liability$10,000.007Bond 1Bond 2Bond 38Coupon rate96.00%8.00%7.000%Maturity (Years)12183010Face value111,0001,0001,00012

Amount to be invested today to meet the future liability $10,000 after 10 years, let be A A =…

Answered: Compute the amount to be invested to…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The Excel file Portfolio Bond Immunization Data contains information about three bonds. Use this data to:
1. Compute the amount to be invested to meet the future liability noted in the data. This future liability is due in 10 years.
2. Find a combination of Bond 1 and Bond 2 having a target duration of 10 years.
3. Find a combination of Bond 1 and Bond 3 having a target duration of 10 years.
4. Perform an analysis using a data table and an accompanying graph to determine which of the following options (i.e., a portfolio consisting of Bond 1 and Bond 2, a portfolio consisting of Bond 1 and Bond 3, or a portfolio consisting of Bond 2) would be preferred to attempt to immunize this obligation.
  1. Construct a data table by varying the yield to maturity that shows the value of each option at the end of 10 years. Use yield to maturity values ranging from 0% to 15% in 1% increments.
  2. Based on your data table, construct a graph that demonstrates the performance of these 3 options.

Analyze each option’s performance in attempting to achieve immunization.

2
Yield to maturity (Expected/Current)
8%
3
Number of Years to Future Liability
4
10.00
Future Liability
$10,000.00
7
Bond 1
Bond 2
Bond 3
8
Coupon rate
9
6.00%
8.00%
7.000%
Maturity (Years)
12
18
30
10
Face value
11
1,000
1,000
1,000
12

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