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(Solution) - Old True Blue Richardson is planning to offset a single payment

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Old True Blue Richardson is planning to offset a single-payment liability with an immunized bond portfolio. Old True Blue is considering buying either bonds with durations close to that of the liability (a "bullet" strategy) or bonds with durations considerably above and below that of the liability (a "barbell" strategy). Why is the bullet strategy a lower risk strategy for Old True Blue? What are its disadvantages relative to the barbell strategy?

 







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This question was answered on: Jul 11, 2017

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