The Following Information Relates to Questions
Chaopraya Av Is an Investment

question 11

Essay

The following information relates to Questions
Chaopraya av is an investment advisor for high-net-worth individuals. one of her clients,Schuylkill Cy, plans to fund her grandson's college education and considers two options:
option 1 Contribute a lump sum of $300,000 in 10 years.
option 2 Contribute four level annual payments of $76,500 starting in 10 years.The grandson will start college in 10 years. Cy seeks to immunize the contribution today.For option 1, av calculates the present value of the $300,000 as $234,535. to immunize the future single outflow, av considers three bond portfolios given that no zero-coupon govern- ment bonds are available. The three portfolios consist of non-callable, fixed-rate, coupon-bearing government bonds considered free of default risk. av prepares a comparative analysis of the three portfolios, presented in exhibit 1.
$$\begin{array}{l}\text { EXHIBIT } 1 \text { Results of Comparative Analysis of Potential Portfolios }\\\begin{array} { l c c c } \hline & \text { Portfolio A } & \text { Portfolio B } & \text { Portfolio C } \\\hline \text { Market value } & \$ 235,727 & \$ 233,428 & \$ 235,306 \\\text { Cash flow yield } & 2.504 \% & 2.506 \% & 2.502 \% \\\text { Macaulay duration } & 9.998 & 10.002 & 9.503 \\\text { Convexity } & 119.055 & 121.498 & 108.091 \\\hline\end{array}\end{array}$$
av evaluates the three bond portfolios and selects one to recommend to Cy.
-Discuss the effectiveness of av's immunization strategy in terms of duration gaps.

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Response Scale

A method used in questionnaires and surveys to measure the intensity or frequency of respondents' feelings, attitudes, or behaviors.

Self-Report Measures

Research tools used to gather data by asking participants to report their own feelings, behaviors, or attitudes.

Socially Desirable

Behaving in ways that are viewed favorably by others, often to gain approval or avoid disapproval.

Positive Correlation

When one variable is high, the other variable tends to be high as well.