We have earlier studied that the investor may have to carry cash for some time because of discrepancies arising between the timing of the bond's cash-flow and the liability. Suppose we assume that he can borrow for a short time period, then he can depend on cash flow occurring after a liability to cover it. Constructing a bond portfolio with cash-flow around rather than prior to the maturities of the liabilities is less restrictive. Hence it should be easier and cheaper. This strategy is based on the assumption of cost of borrowing cash. If the cost is actually higher than the assumed cost, then the risk of being short to fund the liabilities may arise.

Callable bonds must be avoided as they may bring in uncertainty in the bond portfolio cash flow.

Excluding default risk.

Assume a 10% discount rate with respect to both the bonds.

Posted Date: 9/11/2012 2:14:29 AM | Location : United States

Ask an Expert

Related Discussions:- Symmetric cash matching, Assignment Help, Ask Question on Symmetric cash matching, Get Answer, Expert's Help, Symmetric cash matching Discussions

Write discussion on Symmetric cash matching
Your posts are moderated

Write your message here..

Related Questions

What is the benefits of divestment, What is the Benefits of divestment ... What is the Benefits of divestment ¸ Releases cash tied up to finance more promising opportunities. ¸ Reduces diversification and complexity of a group in case of a demerger

Yield spread strategies, Bond market can be classified into various s... Bond market can be classified into various segments based on the nature of characteristics such as type of issuer (central bank, corporate etc.), credit risk (ris

Differences between indirect costs and direct costs, a) Variable costs: Rem... a) Variable costs: Remuneration of flight attendants, Meals and drinks onboard, Fuel. Fixed costs: promotions and Advertising, Remuneration of administrative staff and Airport c

Find the impact of price and trading volume, Purpose of research: The a... Purpose of research: The aims of this research are to examine the effectiveness of speculation on efficiency of Petrochemical sector in Saudi Arabia financial market"TADAWUL".

Deferred coupon bonds, Deferred coupon bonds are generally issu... Deferred coupon bonds are generally issued at a discount price and are used for financing leveraged buyouts. The coupon payment on these types o

How is finance related to accounting and economics, How is finance related ... How is finance related to the disciplines of accounting and economics? Financial management is fundamentally a combination of economics and accounting. First financial managers

White knight, A friendly potential acquirer sought through a goal organizat... A friendly potential acquirer sought through a goal organization threatened by a less welcome suitor.

Active management of portfolio, Investors, who do not believe in Effi... Investors, who do not believe in Efficient Market Hypothesis (EMH), adopt active management strategies. Such investors incur more search costs (with regard to tim

Fixed rate versus floating rate asset backed securities, There are fi... There are fixed as well as floating rate asset-backed securities. A floating rate asset-backed security is one whose underlying pool consists of loans or receivab

How to calculate present value?, Illustration  Vishal Mehta & Co.... Illustration  Vishal Mehta & Co., Mumbai issued 7%, 5-year bond on 31st December 2006. The par value of a bond is Rs. 100. This bond pays interest annually and