Assume your investment horizon is 3 years and you aim to guarantee yourself a rate of return of 10% A 4 year bond paying a annual coupon of 34.8% has a duration of 3 years as well. (note that the duration of this bond equals your investment horizon, and you buy this bond to match your requirements above ie you are immunized) Calculate. A. Assume as soon as you bought the above bond to immunize your position interest rates fall to 8% 1. The cost of buying this bond. 2. The returns in $ you would earn if you sell the bond in year 3 ( your investment horizon date). Note that there are 2 components of return, selling the bond and reinvestment of coupons 3. Calculate the annualized rate of return B. Redo question 1 to 3, assuming interest rates go up to 12% Annualized Rate of Return Annualized Rate of Return Ending Value Beginning Value |bh| n - 1