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1.You face a four-year obligation. At the end of each year, $1000 needs to be paid out. You plan to immunize this obligation using 2-year
1.You face a four-year obligation. At the end of each year, $1000 needs to be paid out. You plan to immunize this obligation using 2-year and 5-year bonds with coupon rate 6% and coupons paid annually. The current market interest rate is 6%.
(1) What is the current value of the obligation?
(2) To immunize the obligation, at time 0, what should be the proportions invested in the 2-year bond and the 5-year one?
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