A superannuation (retirement) fund must make payments to a customer of $12 million in 1 year and $4 million in 5 years. The yield curve is flat at 10% per annum.

Required:

1. a) The firm wants to fully fund and immunize its obligation to the customer with

   zero-coupon bonds. What maturity bonds must it purchase?

   (5 marks)

2. b) What must be total market value and the face value of the zero-coupon bonds?

   (2 marks)