Securities A, B, and C have the following cash flows: (Ignore taxes)ADCАBсYear 1$ 4312313Year 2 Year 3$ 43$ 4313a. Calculate their durations if the interest rate is 7%.b. Suppose that you have an investment of $10.3 million in A. What combination of B and C would hedge this investmentagainst interest rate changes?c. Now suppose that you have a $10.3 million investment in B. How would you hedge?113Complete this question by entering your answers in the tabs below.SecuritiesAсRequired A Required B Required CNow suppose that you have a $10.3 million investment in B. How would you hedge?Note: Enter your numeric answers as a positive value. Do not round intermediate calculations. Enter your numeric answers inmillions rounded to 3 decimal places.PositionShort positionLong positionAmountmillionmillion

Portfolio duration is calculated as shown below.

A B C Year 1 $43 123 13 Year 2 $ 43 13 Year 3 $ 43 113 a. Calculate their durations if the interest rate is 7%. b. Suppose that you have an investment of $10.3 million in A. What combination of B and C w against interest rate changes? c. Now suppose that you have a $10.3 million investment in B. How would you hedge? Complete this question by entering your answers in the tabs below.

A B C Year 1 $43 123 13 Year 2 $ 43 13 Year 3 $ 43 113 a. Calculate their durations if the interest rate is 7%. b. Suppose that you have an investment of $10.3 million in A. What combination of B and C w against interest rate changes? c. Now suppose that you have a $10.3 million investment in B. How would you hedge? Complete this question by entering your answers in the tabs below.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.12: Uneven, Or Irregular, Cash Flows

Problem 3ST

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