3. Hedging bond portfolio: You are the portfolio manager of Immunity Annuity Insurance Company (IAIC). Your company's investment policy is to immunize its liabilities to policy-holders. The sales department has just sold a 5 year annuity of $10,000 per year starting 1 year from now. (Your company will have to pay this amount over the next 5 years). a) If the yield curve is flat at an interest rate of 9% per year, what is the amount IAIC should invest to immunize this new annuity contract? (5) its maturity be? b.) If IAIC wants to hedge the annuity with a single zero coupon bond, what should (5) c.) What will be the face value of the zero coupon bond in the problem above? d) Assuming no change in interest rates (that is, the yield curve remains flat at 9% per year) what must IAIC do one year from now (at year 1) in order to meet its first obligation. How much do you reinvest at the end of the first year to meet remaining obligation? (5) e.) If at year 1 IAIC invests in zero coupon bonds, what should be its maturity? 3. Hedging bond portfolio: You are the portfolio manager of Immunity Annuity Insurance Company (IAIC). Your company's investment policy is to immunize its liabilities to policy-holders. The sales department has just sold a 5 year annuity of $10,000 per year starting 1 year from now. (Your company will have to pay this amount over the next 5 years). a) If the yield curve is flat at an interest rate of 9% per year, what is the amount IAIC should invest to immunize this new annuity contract? (5) its maturity be? b.) If IAIC wants to hedge the annuity with a single zero coupon bond, what should (5) c.) What will be the face value of the zero coupon bond in the problem above? d) Assuming no change in interest rates (that is, the yield curve remains flat at 9% per year) what must IAIC do one year from now (at year 1) in order to meet its first obligation. How much do you reinvest at the end of the first year to meet remaining obligation? (5) e.) If at year 1 IAIC invests in zero coupon bonds, what should be its maturity