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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.
We can measure the portfolio duration by calculating the weighted average of the duration of the bonds in the portfolio. The proportion of the portfolio that a se
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Define operating cycle and long and short operating cycle? Use of operating cycle? Can someone give me assistance on these questions??
answers for the personal finance literacy 2nd edition workbook answers chapter 9(obtaining and protecting your credit)
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