A portfolio manager has decided to pursue a contingent immunization strategy over a three-year time horizon. He
just purchased at par $93 million worth of 10.0% semiannual coupon, 12-year bonds. Current rates of return for
immunized strategies are 10.0% and the portfolio manager is willing to accept a return of 8.5%. If interest rates
rise to 11% immediately, what is the dollar safety margin ?作者: Roflnadal 时间: 2013-4-24 06:38
Around 303066?作者: cv4cfa 时间: 2013-4-24 06:45
not only does n change, you also have to add to your calculated PV with 1 year worth of reinvestment return.
it is semi annual payment, so coupon+couponx(1+I/Y)^0.5 is added to arrive at total bond value.
I think the reinvestment I/Y to use is 10%.
Schweser had this in one of its practice exams.作者: Windjammer 时间: 2013-4-24 06:49
mcap11 wrote:
^ i also get $303,066 safety margin
PV assets = 86,884,460
Reequired assets = 86,581,393
^this作者: canadiananalyst 时间: 2013-4-24 06:51
remember this.(one year later q)
I often got wrong answer on contingent immuz question…Do you write down the formula or inputs for TVM first? Thanks.作者: AnalystForum 时间: 2013-4-24 06:55
Why not show yours first?作者: strikethree 时间: 2013-4-24 07:10
page page 35 says there is a “lack of assurance that the immunization rate (9%) will be achieved.”
Now I notice it’s different from point 1. It may mean that: when the rate rises, the dollar safety margin is 0 and it switches to immunization mode. We have to consider the re-investment in this case, since the immunization rate is a total rate of return… Especially when the yield curve is upward sloping.
