5. Asset cashflow consists of A1 in 1 year and A5 in 5 years. The yield for all payments is 10%. An attempt is made to have the asset cash flow immunize the liability cashflow by matching present value and duration. Liability payments of 100 each are due to be paid in 2,4 and 6 years from now. (a) Find Aj and A1 (b) satisfied. Determine whether or not the conditions for Redington immunization are

Algebra & Trigonometry with Analytic Geometry
13th Edition
ISBN:9781133382119
Author:Swokowski
Publisher:Swokowski
Chapter10: Sequences, Series, And Probability
Section10.3: Geometric Sequences
Problem 82E
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Part B, solution should be mathematically explained (no excel or computer code)

Liability payments of 100 each are due to be paid in 2,4 and 6 years from now.
Asset cashflow consists of A1 in 1 year and Az in 5 years. The yield for all payments is 10%.
An attempt is made to have the asset cash flow immunize the liability cashflow by matching
6.
present value and duration.
(a)
Find A1 and A1
(b)
Determine whether or not the conditions for Redington immunization are
satisfied.
Transcribed Image Text:Liability payments of 100 each are due to be paid in 2,4 and 6 years from now. Asset cashflow consists of A1 in 1 year and Az in 5 years. The yield for all payments is 10%. An attempt is made to have the asset cash flow immunize the liability cashflow by matching 6. present value and duration. (a) Find A1 and A1 (b) Determine whether or not the conditions for Redington immunization are satisfied.
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