i) What is the present value of the obligation to pay $1,000,000 in 3 years?

ii) What are the fair prices of bond A and B?

iii) What are the durations of bond A and B?

iv) How many bonds A and B should you buy to fully immunise your obligation?

c) You have an obligation to pay $1,000,000 in 3 years. The market yield to maturity is 10% for all maturities, with annual compounding. You would like to make an investment now to enable the fund to meet this obligation in 3 years' time. The investment will be a portfolio containing two of the following bonds. Bond A is a zero-coupon bond. Bond B pays coupon annually with total coupon 75%. Bond Face value ($) Maturity (years) Coupon A 100 1 0% B 100 5 15%