Acumulated value and total return

Date 15-Jul-03
Investment horizon 5.5
Coupon rate 0.125
Maturity #ADDIN? 15-Jan-04
YTM 0.125
Price 100

( )
Par value purchased 8,820,262 10  Accumulated va
New Yield
Purchase price 8,820,262 9 . 371. 528 1+ 2 
2  8.820.262
Target acumulated value 17,183,033

Coupon After 6 Accumulated

New yield Price of bond Total return
interest month value
0.160 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.155 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.145 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.140 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.135 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.130 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.125 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.120 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.115 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.110 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.105 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.100 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.095 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.090 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.085 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.080 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.075 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.070 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.065 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.060 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.055 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?
0.050 #ADDIN? 8,820,262 #ADDIN? #ADDIN? #ADDIN?

Duration #ADDIN?

Immunization
20,500,000

19,000,000
Accumulated value

17,500,000

16,000,000

14,500,000

13,000,000

11,500,000

10,000,000
0.040 0.060 0.080 0.100 0.120 0.140 0.160

Yield
 16,000,000

Accumulate
14,500,000

13,000,000

11,500,000

10,000,000
0.040 0.060 0.080 0.100 0.120 0.140 0.160

Yield
  Accumulated value 1 / 1 1 
2    1
 8.820.262  

0.120 0.140 0.160 0.180

0.120 0.140 0.160 0.180
Acumulated value and total return after 5,5 years
Date 15-Jul-03

[ ]
Investment horizon 5.5 1
1−
Coupon rate 0.125 (1+ y )n VN
Maturity #ADDIN? 15-Jan-09 P=C +
YTM 0.125 y (1+ y )n
Price 100

[ ] [( ) ]
1/ 11
Par value purchased 8,820,262 ( 1+r )n−1 2
Accumulated value
−1
Purchase price 8,820,262 C −nC 8 .820 . 262
Target acumulated value 17,183,033 r

Coupon Interest on Price of Accumulated

New yield Total return
interest interest bond value
0.160 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.155 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.145 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.140 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.135 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.130 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.125 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.120 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.115 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.110 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.105 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.100 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.095 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.090 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.085 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.080 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.075 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.070 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.065 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.060 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.055 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?
0.050 #ADDIN? #ADDIN? #ADDIN? #ADDIN? #ADDIN?

Duration #ADDIN?

Immunization
18,000,000
17,000,000
16,000,000
15,000,000
14,000,000
Accumulated value

13,000,000
12,000,000
11,000,000
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
0.040 0.060 0.080 0.100 0.120 0.140 0.1
Accumulated
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
0.040 0.060 0.080 0.100 0.120 0.140 0.1

Yield
 ]
1
(1+ y )n VN
+
y (1+ y )n

) ]
1/ 11
cumulated value
−1
8 .820 . 262

on

0.120 0.140 0.160 0.180

0.120 0.140 0.160 0.180
Acumulated value and total return
Date 15-Jul-03

[ ]
Investment horizon 5.5 1
Coupon rate 0.125 1−
(1+ y )n VN
Maturity #ADDIN? 15-Jul-18 P=C +
YTM 0.125 y (1+ y )n
Price 100

[ ] [( )
1/ 11
Par value purchased 8,820,262 ( 1+r )n−1 2
Accumulated value
−
Purchase price 8,820,262 C −nC 8 .820 . 262
Target acumulated value 17,183,033 r

Coupon Interest on Price of Accumulated

New yield Total return
interest interest bond value

0.160 6,063,930 3,112,167 #ADDIN? #ADDIN? #ADDIN?

0.155 6,063,930 2,990,716 #ADDIN? #ADDIN? #ADDIN?
0.145 6,063,930 2,753,177 #ADDIN? #ADDIN? #ADDIN?
0.140 6,063,930 2,637,037 #ADDIN? #ADDIN? #ADDIN?
0.135 6,063,930 2,522,618 #ADDIN? #ADDIN? #ADDIN?
0.130 6,063,930 2,409,894 #ADDIN? #ADDIN? #ADDIN?
0.125 6,063,930 2,298,840 #ADDIN? #ADDIN? #ADDIN?
0.120 6,063,930 2,189,433 #ADDIN? #ADDIN? #ADDIN?
0.115 6,063,930 2,081,648 #ADDIN? #ADDIN? #ADDIN?
0.110 6,063,930 1,975,462 #ADDIN? #ADDIN? #ADDIN?
0.105 6,063,930 1,870,852 #ADDIN? #ADDIN? #ADDIN?
0.100 6,063,930 1,767,794 #ADDIN? #ADDIN? #ADDIN?
0.095 6,063,930 1,666,266 #ADDIN? #ADDIN? #ADDIN?
0.090 6,063,930 1,566,246 #ADDIN? #ADDIN? #ADDIN?
0.085 6,063,930 1,467,712 #ADDIN? #ADDIN? #ADDIN?
0.080 6,063,930 1,370,642 #ADDIN? #ADDIN? #ADDIN?
0.075 6,063,930 1,275,014 #ADDIN? #ADDIN? #ADDIN?
0.070 6,063,930 1,180,808 #ADDIN? #ADDIN? #ADDIN?
0.065 6,063,930 1,088,003 #ADDIN? #ADDIN? #ADDIN?
0.060 6,063,930 996,577 #ADDIN? #ADDIN? #ADDIN?
0.055 6,063,930 906,511 #ADDIN? #ADDIN? #ADDIN?
0.050 6,063,930 817,785 #ADDIN? #ADDIN? #ADDIN?

Duration #ADDIN?

Immunization
32,000,000
31,000,000
30,000,000
29,000,000
28,000,000
Accumulated value

27,000,000
26,000,000
25,000,000
24,000,000
23,000,000
22,000,000
21,000,000
20,000,000
19,000,000
 31,000,000
30,000,000
29,000,000
28,000,000

Accumulated value
27,000,000
26,000,000
25,000,000
24,000,000
23,000,000
22,000,000
21,000,000
20,000,000
19,000,000
18,000,000
17,000,000
16,000,000
0.040 0.060 0.080 0.100 0.120 0.140 0.16

Yield
 ]
1
+ y )n VN
+
(1+ y )n

[( ) ]
1/ 11
Accumulated value
2 −1
8 .820 . 262

Change in Total change

Change in
interest on Accumulated
Price
interest value
813,327 #ADDIN? #ADDIN?
691,875 #ADDIN? #ADDIN?
454,336 #ADDIN? #ADDIN?
338,197 #ADDIN? #ADDIN?
223,778 #ADDIN? #ADDIN?
111,054 #ADDIN? #ADDIN?
0 #ADDIN? #ADDIN?
-109,407 #ADDIN? #ADDIN?
-217,192 #ADDIN? #ADDIN?
-323,378 #ADDIN? #ADDIN?
-427,989 #ADDIN? #ADDIN?
-531,046 #ADDIN? #ADDIN?
-632,574 #ADDIN? #ADDIN?
-732,594 #ADDIN? #ADDIN?
-831,128 #ADDIN? #ADDIN?
-928,198 #ADDIN? #ADDIN?
-1,023,826 #ADDIN? #ADDIN?
-1,118,032 #ADDIN? #ADDIN?
-1,210,838 #ADDIN? #ADDIN?
-1,302,263 #ADDIN? #ADDIN?
-1,392,329 #ADDIN? #ADDIN?
-1,481,055 #ADDIN? #ADDIN?

ion
0.120 0.140 0.160 0.180
Acumulated value and total return
Date 15-Jul-03

[ ]
Investment horizon 5.5 1
Coupon rate 0.10 1−
(1+ y )n VN
Maturity #ADDIN? 15-Jul-11 P=C +
YTM 0.125 y (1+ y )n
Price #ADDIN?

[ ] [( )
1/ 11
Par value purchased 10,000,000 ( 1+r )n−1 2
Accumulated value
−1
Purchase price 8,820,262 C −nC 8 .820 . 262
Target acumulated value 17,183,033 r

Coupon Interest on Price of Accumulated

New yield Total return
interest interest bond value
0.160 5,568,750 2,858,028 #ADDIN? #ADDIN? #ADDIN?
0.155 5,568,750 2,746,494 #ADDIN? #ADDIN? #ADDIN?
0.145 5,568,750 2,528,352 #ADDIN? #ADDIN? #ADDIN?
0.140 5,568,750 2,421,697 #ADDIN? #ADDIN? #ADDIN?
0.135 5,568,750 2,316,621 #ADDIN? #ADDIN? #ADDIN?
0.130 5,568,750 2,213,102 #ADDIN? #ADDIN? #ADDIN?
0.125 5,568,750 2,111,117 #ADDIN? #ADDIN? #ADDIN?
0.120 5,568,750 2,010,644 #ADDIN? #ADDIN? #ADDIN?
0.115 5,568,750 1,911,661 #ADDIN? #ADDIN? #ADDIN?
0.110 5,568,750 1,814,146 #ADDIN? #ADDIN? #ADDIN?
0.105 5,568,750 1,718,078 #ADDIN? #ADDIN? #ADDIN?
0.100 5,568,750 1,623,436 #ADDIN? #ADDIN? #ADDIN?
0.095 5,568,750 1,530,199 #ADDIN? #ADDIN? #ADDIN?
0.090 5,568,750 1,438,347 #ADDIN? #ADDIN? #ADDIN?
0.085 5,568,750 1,347,859 #ADDIN? #ADDIN? #ADDIN?
0.080 5,568,750 1,258,715 #ADDIN? #ADDIN? #ADDIN?
0.075 5,568,750 1,170,897 #ADDIN? #ADDIN? #ADDIN?
0.070 5,568,750 1,084,383 #ADDIN? #ADDIN? #ADDIN?
0.065 5,568,750 999,156 #ADDIN? #ADDIN? #ADDIN?
0.060 5,568,750 915,197 #ADDIN? #ADDIN? #ADDIN?
0.055 5,568,750 832,486 #ADDIN? #ADDIN? #ADDIN?
0.050 5,568,750 751,005 #ADDIN? #ADDIN? #ADDIN?

Duration #ADDIN?

Immunization
12

10
Accumultated value

2
 10

Accumultated value
8

0
0.040 0.060 0.080 0.100 0.120 0.140 0.1

Yield
 )n
] +
VN
(1+ y )n

[( ) ]
1/ 11
Accumulated value
2 −1
8 .820 . 262

Change in Total change

Change in
interest on Accumulated
Price
interest value
746,911 #ADDIN? #ADDIN?
635,377 #ADDIN? #ADDIN?
417,235 #ADDIN? #ADDIN?
310,580 #ADDIN? #ADDIN?
205,504 #ADDIN? #ADDIN?
101,985 #ADDIN? #ADDIN?
0 #ADDIN? #ADDIN?
-100,473 #ADDIN? #ADDIN?
-199,456 #ADDIN? #ADDIN?
-296,971 #ADDIN? #ADDIN?
-393,039 #ADDIN? #ADDIN?
-487,681 #ADDIN? #ADDIN?
-580,918 #ADDIN? #ADDIN?
-672,770 #ADDIN? #ADDIN?
-763,258 #ADDIN? #ADDIN?
-852,402 #ADDIN? #ADDIN?
-940,221 #ADDIN? #ADDIN?
-1,026,734 #ADDIN? #ADDIN?
-1,111,961 #ADDIN? #ADDIN?
-1,195,921 #ADDIN? #ADDIN?
-1,278,632 #ADDIN? #ADDIN?
-1,360,112 #ADDIN? #ADDIN?

To immunize a portfolio's target accumulated value (target yield) against a ch

ation market yield, a portfolio manager must invest in a bond (or a bond portfolio) such t

(1) The macaulay duration is equal to the investment horizon, and

(2) the initial present value of the cash flow from the bond (or bond portfolio)
present value of the future liability.
 0.120 0.140 0.160 0.180

ld
 alue (target yield) against a change in the
ond (or a bond portfolio) such that:

nt horizon, and

m the bond (or bond portfolio) equals the