If you are a bank with liabilities of duration 4 years, how will you choose the composition of your assets to eliminate the interest rate risk that you would be exposed to if you had a duration mismatch on your balance sheet? Assume your assets can only be 3 year or 25 year zero coupon bonds.

• A. I would purchase a portfolio consisting for 95% of 3 year and for 5% of 25 year bonds with a total value equal to the value of my liabilities.
• B. I would purchase a portfolio consisting for 50% of 3 year for 50% of 25 year bonds with a total value equal to the value of my liabilities.
• C. I would purchase a portfolio consisting for 90% of 3 year and for 10% of 25 year bonds with a total value equal to the value of my liabilities.
• D. I would purchase a portfolio consisting for 10% of 3 year and for 90% of 25 year bonds with a total value equal to the value of my liabilities.