b) FBC Securities case scenario Leeroy Chitseko, CFA is a Fixed income securities traders at FBC Securities. Chitseko has decided to pursue a contingent immunization strategy over a 5-year time horizon. He just purchased at par R10 million worth of 7.7%, annual coupon, 8 year bonds. The current rate of return for immunized strategies is 8%, and he is willing to accept a return of 6.4% (this is the safety net return).

i) Determine the cushion spread. (2)

ii) Compute the required terminal value and the required assets needed at initial implementation. (6)

iii) Determine whether active management is still viable should interest rates immediately rise to 9.8%. (4)