Calculating Immunization
Immunization starts with the assumption that the yield curve is flat. It then assumes that interest rate changes are parallel shifts up or down in that yield curve. Let the net cash flow at time t be denoted by Rt, i.e.:
Rt = At - Lt ; t = 1,2,3,...,n
where At and Lt represent cash inflows (At) and outflows or liabilities (Lt)
We will assume that the present value of cash inflows from the assets is equal to the present value of the cash outlfows from the liabilities. Thus, we have:
P(i) = 0
Read more about this topic: Immunization (finance)
Famous quotes containing the word calculating:
“Because relationships are a primary source of self-esteem for girls and women, daughters need to know they will not lose our love if they speak up for what they want to tell us how they feel about things. . . . Teaching girls to make specific requests, rather than being indirect and agreeable, will help them avoid the pitfalls of having to be manipulative and calculating to get what they want.”
—Jeanne Elium (20th century)