A company is considering constructing a new factory and is considering funding it by issuing a corporate bond to the value of $9m. The bond would have a term to maturity of 12 years, a coupon rate of 3.0% and the bond would be sold into the market at expected yield of 2.8%. Show how an immunisation portfolio could be constructed from the bonds below if the CB cut interest rates by 0.50% over the next year. Show how this strategy would work and explain the nature of the risk and how the protection is created.

2.3% US Treasury 2030, @ Yield to Maturity of 1.50%

2.5% US Treasury 2030, @ Yield to Maturity of 1.67%

3.2% USTreasury 2035, @ Yield to Maturity of 1.71%

3.6% US Treasury 2038, @ Yield to Maturity of 1.73%

2.5% US Treasury 2039, @ Yield to Maturity of 1.74%

5.5% USTreasury 2042, @ Yield to Maturity of 1.78%