Revision as of 00:30, 5 December 2023 by Admin (Created page with "'''Solution: A''' <math display = "block">\begin{gathered}P V=\frac{20}{(1+5 \%)^1 0}+\frac{20}{(1+5 \%)^3 0}=12.28+6.94=19.22 \text { million } \\ D=\frac{12.28 * 10+6.94 * 30}{19.22}=17.22 \\ M D=\frac{D}{1+y}=16.40\end{gathered}</math> When rates drop by 0.25%, the PV of liabilities will go up by 0.25% ∗ MD ∗ PV = 0.7881 million '''References''' {{cite web |url=https://alo.mit.edu/wp-content/uploads/2015/06/PS_Part1.pdf |last1=Lo |first1=Andrew W. |last2 = W...")
Exercise
Dec 05'23
Answer
Solution: A
[[math]]\begin{gathered}P V=\frac{20}{(1+5 \%)^1 0}+\frac{20}{(1+5 \%)^3 0}=12.28+6.94=19.22 \text { million } \\ D=\frac{12.28 * 10+6.94 * 30}{19.22}=17.22 \\ M D=\frac{D}{1+y}=16.40\end{gathered}[[/math]]
When rates drop by 0.25%, the PV of liabilities will go up by
0.25% ∗ MD ∗ PV = 0.7881 million
References
Lo, Andrew W.; Wang, Jiang. "MIT Sloan Finance Problems and Solutions Collection Finance Theory I" (PDF). alo.mit.edu. Retrieved November 30, 2023.