Ferdinand Levy's Simple Approach: A Rejoinder

We would first like to clear up a misconception that we evidently created [Arnold, Larry R., Donal Botkin. 1978. Portfolios to satisfy damage judgment: A linear programming approach. Interfaces8 (2, February) 38–42.]. The concept that had not been formally accepted by the court was the use of a portfolio of bonds rather than bank savings. The issue of the method of generation of the portfolio of bonds is not relevant to the court. Rather, the court would require proof that the cash flows so generated would be sufficient to meet the requirements.

We certainly share Professor Levy's desire for a simple and easy-to-explain method of generating such portfolios. However, we take issue with this particular method because of an assumption underlying yield to maturity (YTM).