Assume that you have just issued a 5 year bond with coupon rate c % and face value 10 000. This bond is hence a liability to you.

Using the bonds in the table below, find a portfolio of bonds such that your net portfolio of bonds and liabilities is protected against first-order changes in interest rate risk. How does your portfolio holding depend on c? In particular, explain why and how the fraction of your portfolio invested in Bond#4 changes when c changes. Show and explain your calculations.

	Bond 1	Bond 2	Bond 3	Bond 4
Coupon Rate,	0%	10%	8%	5%
FV	1000	1000	1000	1000
Yield	10%	10%	10%	10%
Coupon	0	100	80	50
Maturity	2	5	3	30