In the market there are 5-year zero coupon bonds with a yield of 4% and 9-year zero coupon bonds with a yield of 6% available. Both have a face value of AUD 100.

a) How can you combine the bonds to create a portfolio with a duration of 7? (2 marks)

b) What will be the expected return on this portfolio? (2 marks) It is now the year 2022, the 5-year zero coupon bond is due and the 4-year yield is 7%.

c) How much money will you receive for the mature bond?