Bond 1 Bond 2

Coupon 0.1 0.16

Term (yrs) 3 4
Face value 100 100
Frequency 2 2
First payments starts in Six month six month
YTM 12%
Duration and Convexity Bond 1
Time(t) cashflow PV Weight(W) tw t2W
0.50
1.00
1.50
2.00
2.50
3.00

Duration and Convexity Bond 2

Time(t) cashflow PV Weight(W) tw t2W
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00

Liability
To pay 100
Time 3 Yrs
PV of liability
Total value

Duration Matching Assets

Bond 1 Bond 2 Total Bond 1(qty) Value
Value
Proportion
Qty
Duration
TARGET CELL
Liability Asset Change

7%
 8%
9%
10%
11%
12%
13%
14%
15%
16%
 Assets
Bond 2(qty) Value Total
Bond 1 Bond 2
Coupon 0.1 0.03
Term (yrs) 3 5
Face value 100 100
Frequency 1 1
First payments starts in Six month six month
YTM 8%
Duration and Convexity Bond 1
Time(t) cashflow PV Weight(W) tw t2W
0.50
1.50
2.50
3.50

Duration and Convexity Bond 2

Time(t) cashflow PV Weight(W) tw t2W
0.50
1.50
2.50
3.50
4.50
5.50

Liability
To pay 100
Time 3.5 Yrs
PV of liability Assets
Total value Bond 1(qty)

Duration Matching
Bond 1 Bond 2 Total
Value
Proportion
Qty
Duration

Liability Asset Change

YTM
5%
6%
7%
8%
9%
10%
11%
 Assets
Value Bond 2(qty) Value Total
 Bond 1 Bond 2 Bond 3 Duration and Convexity
Coupon 6.70% 6.988% 5.90% Time(t) cashflow
Term (yrs) 10 15 30 1 67.00
Face value 1000 1000 1000 2 67.00
Frequency 1 1 1 3 67.00
4 67.00
YTM 6% 5 67.00
6 67.00
7 67.00
Liability 8 67.00
To pay 1822.11880039 9 67.00
Time 10 10 1067.00
PV of liability 1000.00
Total value 1000000000
Duration and Convexity
Duration Matching Time(t) cashflow
Bond 1 Bond 2 Bond 3 1 69.88
Value 612304810.23 63923374.8558 323771811.6 2 69.88
Proportion 61% 6% 32% 1.00 3 69.88
Qty 590073.796869 59342.651934 336662.3245 4 69.88
Duration 7.648 9.954 14.457 5 69.88
10.0000000877 6 69.88
1000000000.00 1000000000 7 69.88
4.00% 0.00 8 69.88
5.00% #VALUE! 9 69.88
7.00% #VALUE! 10 69.88
8.00% #VALUE! 11 69.88
9.00% #VALUE! 12 69.88
10.00% #VALUE! 13 69.88
11.00% #VALUE! 14 69.88
12.00% #VALUE! 15 1069.88
13.00% #VALUE!
14.00% #VALUE!
Duration and Convexity Bond 1 Duration and Convexity Bond 3
PV Weight(W) tw t2W Time(t) cashflow PV Weight(W)
63.10 0.061 0.061 0.061 1 59.00 55.56 0.058
59.42 0.057 0.115 0.229 2 59.00 52.33 0.054
55.96 0.054 0.162 0.485 3 59.00 49.28 0.051
52.70 0.051 0.203 0.813 4 59.00 46.41 0.048
49.63 0.048 0.239 1.196 5 59.00 43.71 0.045
46.74 0.045 0.270 1.622 6 59.00 41.16 0.043
44.02 0.042 0.297 2.079 7 59.00 38.77 0.040
41.46 0.040 0.320 2.557 8 59.00 36.51 0.038
39.04 0.038 0.339 3.048 9 59.00 34.38 0.036
585.58 0.564 5.643 56.432 10 59.00 32.38 0.034
1037.67 1.000 7.648 11 59.00 30.49 0.032
12 59.00 28.72 0.030
Duration and Convexity Bond 2 13 59.00 27.05 0.028
PV Weight(W) tw t2W 14 59.00 25.47 0.026
65.81 0.061 0.061 0.061 15 59.00 23.99 0.025
61.98 0.058 0.115 0.230 16 59.00 22.59 0.023
58.37 0.054 0.163 0.488 17 59.00 21.28 0.022
54.97 0.051 0.204 0.816 18 59.00 20.04 0.021
51.77 0.048 0.240 1.201 19 59.00 18.87 0.020
48.75 0.045 0.272 1.629 20 59.00 17.77 0.018
45.91 0.043 0.298 2.089 21 59.00 16.74 0.017
43.24 0.040 0.321 2.569 22 59.00 15.76 0.016
40.72 0.038 0.340 3.062 23 59.00 14.84 0.015
38.35 0.036 0.356 3.560 24 59.00 13.98 0.015
36.12 0.034 0.369 4.057 25 59.00 13.16 0.014
34.01 0.032 0.379 4.547 26 59.00 12.40 0.013
32.03 0.030 0.387 5.026 27 59.00 11.68 0.012
30.17 0.028 0.392 5.489 28 59.00 11.00 0.011
434.98 0.404 6.057 90.857 29 59.00 10.36 0.011
1077.19 1.000 9.954 30 1059.00 175.05 0.182
961.71 1.000

Assets
Bond 1(qty) Value Bond 2(qty) Value Bond 3(qty Value
590073.80 612304810 59342.65 63923375 336662.325 323771812 999999997
nvexity Bond 3
tw t2W
0.058 0.058
0.109 0.218
0.154 0.461
0.193 0.772
0.227 1.136
0.257 1.541
0.282 1.975
0.304 2.430
0.322 2.896
0.337 3.367
0.349 3.837
0.358 4.300
0.366 4.753
0.371 5.191
0.374 5.612
0.376 6.013
0.376 6.393
0.375 6.750
0.373 7.083
0.370 7.391
0.365 7.674
0.361 7.932
0.355 8.165
0.349 8.372
0.342 8.556
0.335 8.715
0.328 8.851
0.320 8.964
0.312 9.056
5.461 163.819
14.457
 Bond 1 Bond 2 Bond 3 Duration and Convexity
Coupon 6.70% 6.988% 5.90% Time(t) cashflow
Term (yrs) 10 15 30 1 67.00
Face value 1000 1000 1000 2 67.00
Frequency 1 1 1 3 67.00
4 67.00
YTM 6% 5 67.00
6 67.00
7 67.00
Liability 8 67.00
To pay 1822.11880039 9 67.00
Time 10 10 1067.00
PV of liability 1000.00
Total value 1000000000
Duration and Convexity
Duration Matching Time(t) cashflow
Bond 1 Bond 2 Bond 3 1 69.88
Value 424240827.02 348296776.227 227462396.75 2 69.88
Proportion 42% 35% 23% 1.00 3 69.88
Qty 408837.871929 323337.971563 236518.48764 4 69.88
Duration 7.65 9.954 14.46 5 69.88
Target Cell 9.999999 6 69.88
1000000000.00 1000000000 % Change 7 69.88
4.00% -11365432.35 0.9305% 8 69.88
5.00% #VALUE! #VALUE! 9 69.88
7.00% #VALUE! #VALUE! 10 69.88
8.00% #VALUE! #VALUE! 11 69.88
9.00% #VALUE! #VALUE! 12 69.88
10.00% #VALUE! #VALUE! 13 69.88
11.00% #VALUE! #VALUE! 14 69.88
12.00% #VALUE! #VALUE! 15 1069.88
13.00% #VALUE! #VALUE!
14.00% #VALUE! #VALUE!
Duration and Convexity Bond 1 Duration and Convexity Bond 3
PV Weight(W) tw t2W Time(t) cashflow PV Weight(W)
63.10 0.061 0.061 0.061 1 59.00 55.56 0.058
59.42 0.057 0.115 0.229 2 59.00 52.33 0.054
55.96 0.054 0.162 0.485 3 59.00 49.28 0.051
52.70 0.051 0.203 0.813 4 59.00 46.41 0.048
49.63 0.048 0.239 1.196 5 59.00 43.71 0.045
46.74 0.045 0.270 1.622 6 59.00 41.16 0.043
44.02 0.042 0.297 2.079 7 59.00 38.77 0.040
41.46 0.040 0.320 2.557 8 59.00 36.51 0.038
39.04 0.038 0.339 3.048 9 59.00 34.38 0.036
585.58 0.564 5.643 56.432 10 59.00 32.38 0.034
1037.67 7.65 68.52 11 59.00 30.49 0.032
12 59.00 28.72 0.030
Duration and Convexity Bond 2 13 59.00 27.05 0.028
PV Weight(W) tw t2W 14 59.00 25.47 0.026
65.81 0.061 0.061 0.061 15 59.00 23.99 0.025
61.98 0.058 0.115 0.230 16 59.00 22.59 0.023
58.37 0.054 0.163 0.488 17 59.00 21.28 0.022
54.97 0.051 0.204 0.816 18 59.00 20.04 0.021
51.77 0.048 0.240 1.201 19 59.00 18.87 0.020
48.75 0.045 0.272 1.629 20 59.00 17.77 0.018
45.91 0.043 0.298 2.089 21 59.00 16.74 0.017
43.24 0.040 0.321 2.569 22 59.00 15.76 0.016
40.72 0.038 0.340 3.062 23 59.00 14.84 0.015
38.35 0.036 0.356 3.560 24 59.00 13.98 0.015
36.12 0.034 0.369 4.057 25 59.00 13.16 0.014
34.01 0.032 0.379 4.547 26 59.00 12.40 0.013
32.03 0.030 0.387 5.026 27 59.00 11.68 0.012
30.17 0.028 0.392 5.489 28 59.00 11.00 0.011
434.98 0.404 6.057 90.857 29 59.00 10.36 0.011
1077.19 9.954 125.683 30 1059.00 175.05 0.182
961.71

Assets
Bond 1(qty) Value Bond 2(qty) Value Bond 3(qty Value
408837.87 424240827 323337.97 348296776 236518.488 227462397 1000000000
nvexity Bond 3
tw t2W
0.058 0.058
0.109 0.218
0.154 0.461
0.193 0.772
0.227 1.136
0.257 1.541
0.282 1.975
0.304 2.430
0.322 2.896
0.337 3.367
0.349 3.837
0.358 4.300
0.366 4.753
0.371 5.191
0.374 5.612
0.376 6.013
0.376 6.393
0.375 6.750
0.373 7.083
0.370 7.391
0.365 7.674
0.361 7.932
0.355 8.165
0.349 8.372
0.342 8.556
0.335 8.715
0.328 8.851
0.320 8.964
0.312 9.056
5.461 163.819
14.46 312.28
 STEPS

1 COMPUTE DURATION FOR THE GIVEN PORTFOLIO USING COMMON YTM

2 COMPUTE THE PRESENT VALUE OF LIABILITY DISCOUNTING AT YTM

3 ASSUME WEIGHTAGE(PROPORTION) AND DERIVE THE VALUE OF INVESTM

(TOTAL PROPORTION SHOULD EQUAL 1)

4 DERIVE THE VALUE OF THE BOND FROM THE ASSUMED PROPORTION

5 DERIVE THE QUANTITY TO BE PURCHASED FROM THE VALUE

(DIVIDE THE VALUE OF INVESTMENT BY PRICE)

6 DERIVE THE WEIGHTED DURATION OF THE PORTFOLIO BASED ON ASSUM

7 FIX THE TARGET CELL AS LIABILITY DURATION-WEIGHTED DURATION

8 SOLVE FOR PROPORTIONS USING SOLVER OR GOAL SEEK

9 FILLUP THE QUANTITY OF BOND IN THE ASSET STRUCTURE, MAKE SURE I

10 DERIVE THE VALUE OF ASSET STRUCTURE FROM EARLIER DETERMINED PR

11 TEST THE VALUE OF ASSETS AND LIABILITIES FOR CHANGES IN YTM

 RTFOLIO USING COMMON YTM

ITY DISCOUNTING AT YTM

D DERIVE THE VALUE OF INVESTMENT IN VARIOUS BONDS

THE ASSUMED PROPORTION

D FROM THE VALUE

E PORTFOLIO BASED ON ASSUMED PROPORTION

ION-WEIGHTED DURATION

OR GOAL SEEK

ASSET STRUCTURE, MAKE SURE IT IS VALUE

FROM EARLIER DETERMINED PRICE

IES FOR CHANGES IN YTM