Question 1: Bank J&D has the following assets and liabilities: Assets 1: 200 shares of 2-year zero coupon bond with face value 1,000 (assuming risk free). Assets2: 300 shares of 4-year zero coupon bond with face value 1,000 (assuming risk free). Liabilities: The bank needs to pay 300,000 two years from now and 195,960 four years from now. Assuming that the spot rates are always 2% (flat term structure): a. Calculate the duration of the asset and liability portfolios b. Suppose that the bank is worried that all the spot rates will change from 2% to 3%. a. Show that the bank will not be able to pay his liabilities. b. How can you immunize the bank’s portfolio (before the change happens)?

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two years ago, when picking flowers in the mountains back of yosemite valley, i found a book. it was blotted and storm-beaten; all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however; many of the inner pages were well preserved. and although all were more or less stained and torn, whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today; its granite pages have been torn and blurred by the same storms that wasted the castaway book.

two years ago, when picking flowers in the mountains back of yosemite valley; i found a book. it was blotted and storm-beaten, all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however, many of the inner pages were well preserved. and although all were more or less stained and torn; whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today, its granite pages have been torn and blurred by the same storms that wasted the castaway book.