Fixed income portfolio (20 marks) You have an obligation to pay $1,000,000 in 3 years from now, and you would like to make an investment now that will enable you to meet this obligation. This investment will be a portfolio containing two of the following bonds Bond A: 2-year maturity coupon paying bond. The face value is $1000. Coupon rate 6% pa Coupons are paid at the end of each half year. Bond B: 4 year zeto coupon bond. The face value is $1000, Suppose the yield curve is flat at 6% for all maturities. Use semi-annual compounding in this problem. b) What is the present value of the obligation to pay $1,000,000 in 3 years? (1 mark) (b) What are the prices and durations of bond A and B? (4 marks) (0) How many contracts of bonds A and B should you buy to fully immunise your obligation? (6 marks) (d) If yields rise by 19 for all maturities by what percentage will the value of your bond porttalio change using duration approximation? (4 marks) (w). Will your estimate in the previous question tend to over-state, under-state or perfectly estimate the percentage change in the band prices? Explain wtry. 12 Will the bond portfolio still be a good immunizing portfolio for your obligation after 1 year? Assume the yield curve does not change. Explain why. (3 marks) marks)