A client has granted permission for one of its external managers, ABC Financial Management, to employ a contingent immunization strategy. The amount invested by the client is $50 million and the client is willing to accept a 10% rate of return over a 4-year planning horizon. At the same time the client has determined that an immunized rate of return of 12% is possible.

a. What is the safety net return for this contingent immunization strategy?

b. What is the cushion spread?

c. What is the minimum target value for the portfolio assuming semiannual compounding?

d. What are the required assets at the inception of the strategy to achieve the minimum target value at the end of 4 years?

e. What is the initial dollar safety margin?

f. Suppose that the minimum target return that the client had set was 11% instead of 10%. What would be the cushion spread and the initial dollar safety margin?