Fixed-income securities [11 marks] You are going to pay $29,000 tuition fee per year at the end of the next 2 years. You would like to make an investment now to enable the fund to meet this obligation even if there are any rate fluctuations. The investment will be a portfolio containing two of the following bonds. Bond A is a zero-coupon bond. Bond B pays 16% coupon annually. Face value of the bond A and bond B are both $1000. The market yield to maturity is 15% p.a. for all maturities, annual compounding. Bond Maturity (years) Coupon A 0% 1 B 3 16% 1) ii) What is the present value of the obligation? [1] What are the fair prices of bond A and B? [3] What are the durations of bond A and B? [3] How many bonds A and B should you buy to fully immunise your obligation? [4] II) iv)