In bond immunization, why must the firm treat their liability as a short position in a pure discount bond and take up long positions in portfolio of bonds ?
In bond immunization, why must the firm treat their liability as a short position in a pure discount bond and take up long positions in portfolio of bonds ?
Homework Answers
As you are building a portfolio of bonds, you need to have long positions as to hedge risks and go for more investments and mor profits in they ears to come.
But for treating your liability you need to go short in a pure discount bonds as this helps you pay off your debts.
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In bond immunization, why must the firm treat their liability as a short position in a pure discount bond and take up long positions in portfolio of bonds ?
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