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Business, 29.04.2021 22:00 gtsaeg7277

Suppose that bank of NYUSH has to pay 2,000 one year from now and 5,000 three years from now. The yearly yield is 10%. Assume that the bank hires your services in order to immunize the bank’s obligations. The bank asked you to invest in two (or one) bonds: bond A with coupon rate of 7%, face value of 100 and two years to maturity; bond B with coupon rate 5%, face value of 100 and four years to maturity. A. Write down your strategy that will help the bank (provide all your strategy in details. For example, how many units of A and B you intend to purchase). B. The moment you purchase the bonds, the yield changes to 9%. Show that the bank can still pay his obligations using your strategy. C. Does the bank still immunize after one year? If not, what does it need to do in order to be immunized again?

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Suppose that bank of NYUSH has to pay 2,000 one year from now and 5,000 three years from now. The ye...
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