Business, 22.02.2020 01:18 lexxa58

You are in charge of the risk management division at XYZ, Inc. XYZ’ assets consist of investments worth $30 million today in 3-year zero-coupon bonds. XYZ’s liabilities consist of a single payment of $43 million due in 10 years. The term structure of interest rates is flat at 5%. Assume that all shifts in the term structure are parallel. a. What is the Macaulay and Modified duration of XYZ’ assets? b. XYZ, Inc. thinks that interest rates may rise to 5.5%. Compute the exact change in the value of XYZ’s assets and compare this with the approximate change using duration.

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