2a: you should consider matching the present values as well as durations to find the amounts of each bond that the company should purchase to match the liabilities. Then you will have enough information to solve for variables in this part.

Problem 2 2. A company has assumed liabilities of 1,000; 3,000 and 5,000 due in 4, 5 and 6 years respectively. It can match the liabilities with 2 zero-coupon bonds: a 2-year and an 8 year. The market interest rate is 10%. a. Find the amounts of each bond that the company should purchase to match the liabilities; b. Demonstrate whether the conditions for Redington immunization are met by testing the effect of an increase in interest rate from 10% to 10.1%