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Unformatted text preview: 8% (this is the safety net return). Determine cushion spread, terminal value and whether active management is still viable if rates rise to 12%. (100bps, $25.3M, $567k, -$1.97M) 6. Cash Flow Matching 1. Select a bond with a maturity date equal to that of the last liability 2. Buy enough in par value of this bond such that its principal and final coupon fully fund the last liability 3. Work backwards and choose bonds to match liability cash flows 7. The importance of selecting a discount rate to compute PV of liabilities 8. End of chapter question: 12 (page 125 & 126) 9. Homework problems:...
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- Spring '12
- Interest Rates