PORTFOLIO OPTIMIZATION OF SMALL ENTERPRISES AGAINST ADVERSE CHANGES IN INTEREST RATE

PORTFOLIO OPTIMIZATION OF SMALL ENTERPRISES AGAINST ADVERSE CHANGES IN INTEREST RATE

TABLE OF CONTENTSDECLARATION...........................................................................................................iiiACKNOWLEDGEMENT............................................................................................................iiii

DEDICATION.............................................................................................................................iiiv

LIST OF FIGURES ...vii

ABSTRACT…………………………………………………………………………………………….viii

CHAPTER ONE..............................................................................................................................3

Introduction......................................................................................................................................3

1.1 BACKGROUND OF STUDY...............................................................................................3

1.2 INTEREST RATE.................................................................................................................3

1.3 STATEMENT OF THE PROBLEM.....................................................................................3

1.4 OBJECTIVES OF THE STUDY...........................................................................................5

1.4.1 General Objectives..........................................................................................................3

1.4.2 Specific Objectives..........................................................................................................3

1.5 SIGNIFICANCE OF THE STUDY.......................................................................................3

1.6 LIMITATION OF THE STUDY...........................................................................................3

1.7 ASSUMPTIONS OF THE STUDY.......................................................................................7

1.8 THE SCOPE..........................................................................................................................7

1.9 DEFINITION OF TERMS.....................................................................................................71.10 LITERATURE REVIEW....................................................................................................8

CHAPTERTWO...........................................................................................................................13

REDINGTON IMMUNIZATION MODEL.................................................................................13

2.1 Introduction………………………………………………………………..……………13

2.1.1 Duration in a Portfolio...................................................................................................15

2.1.2 Convexity of a portfolio....................................................................................................16

2.2 GENERALIZATION OF THE MODEL.............................................................................18

2.2.1 General Application of the Model Application.......................................................20

CHAPTER THREE.......................................................................................................................22

3.1 DATA FINDINGS AND ANALYSIS...........................................................................22

3.2 DESCRIPTIVE STATISTICS........................................................................................22

vi3.2.1 Increase In Interest Rates..............................................................................................23

3.2.2 Decrease In Interest Rates.............................................................................................24         3.3 DISCUSSION OF FINDINGS .....................................................................................................29

CHAPTER FOUR    

4.1CONCLUSION AND RECOMMENDATIONS.................................................................324.1.1 INTRODUCTION............................................................................................................324.2 CONCLUSION....................................................................................................................344.3 RECOMMENDATIONS FOR THE STUDY.....................................................................344.4 AREAS FOR FURTHER RESEARCH...............................................................................34

REFERENCES..............................................................................................................................35APPENDICIES..............................................................................................................................38APPENDIX I: INTRODUCTORY LETTER............................................................................38

APPENDIX II: DATA COLLECTED.......................................................................................39APPENDIX III:FORMULAS AND R CODES USED42