Symmetric cash matching, Financial Management

Assignment Help:

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.


Related Discussions:- Symmetric cash matching

Beta, Definition of 'Beta' A measure of the volatility or systematic ri...

Definition of 'Beta' A measure of the volatility or systematic risk of a security or a portfolio in difference to the market as a whole. Beta is needed in the capital asset pri

Bond, Bond - One type of long-term PROMISSORY NOTE, often issued to the pub...

Bond - One type of long-term PROMISSORY NOTE, often issued to the public as a SECURITY regulated under federal securities laws or state BLUE SKY LAWS. Bonds can eitherbe registered

Assessing creditworthiness of an issuer of bond, Following are the areas an...

Following are the areas an analyst should consider while assessing the creditworthiness of an issuer. 1. Security Limitations: The bond indenture shoul

Calculate the interest value , 1. Suppose a firm's tax rate is 35%. What af...

1. Suppose a firm's tax rate is 35%. What affect would a $10 million operating expense have on this year's earnings?  What effect would it have on next year's earnings? 2. What

Forms of dividend, FORMS OF DIVIDEND Cash Dividend Many Companies...

FORMS OF DIVIDEND Cash Dividend Many Companies pay dividend in cash. Often cash dividend may be supplemented by a bonus issue (stock dividend).  When the company chooses

Decentralization, Decentralization This is a company power structure i...

Decentralization This is a company power structure in which authority and decision-making responsibility are diffused throughout various stages of an organization. Decentraliz

How does the net present value relate to value of the firm, How does the ne...

How does the net present value relate to the value of the firm? The net present value is the dollar amount of the amend to the value of the firm if the project under considerat

Working of financial services authority, Working of FSA The FSA Board ...

Working of FSA The FSA Board is responsible for the management of FSA. It is appointed by the Treasury. It consists of a chairman, a chief executive officer, three managing dir

How many types of segments in the mutual fund industry, How many types of s...

How many types of segments in the mutual fund industry? There are two segments into the mutual fund industry: long-term funds and short-term funds. In Long-term funds bond fund

Operating cycle, Uses of operating cycle in business

Uses of operating cycle in business

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd