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Consider a liability of 1,000 in 2 years. Using two zero-coupon bonds, one maturing in 1 year, the other maturing in 4 years, devise an
Consider a liability of 1,000 in 2 years. Using two zero-coupon bonds, one maturing in 1 year, the other maturing in 4 years, devise an immunization strategy, that will work against any change in the interest rate. State the type of immunization you are going for, determine how much of each bond (redemption amount) you are using as asset and brie y explain why your proposed strategy achieves the goal. Assume an initial annual effective interest rate of i0 = 0.75.
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