Instructions: Answer all parts of all questions and show all work. Question 1. (11 points) a. Find the duration of a 8% coupon bond making annual coupon pay- ments if it has three years until maturity and a yield to maturity of 12%. b. If you wants to fully fund and immunize its position, how much of your portfolio should allocate to two year zero-coupon bonds and perpetu- ities, respectively, if these are the only two assets funding the plan? c. How will these fractions change next year if your 8% coupon bond duration also drop one year?

Instructions: Answer all parts of all questions and show all work. Question 1. (11 points) a. Find the duration of a 8% coupon bond making annual coupon payments if it has three years until maturity and a yield to maturity of 12%. b. If you wants to fully fund and immunize its position, how much of your portfolio should allocatc to two ycar zcro-coupon bonds and perpctuities, respectively, if these are the only two assets funding the plan? c. How will these fractions change next year if your 8% coupon bond duration also drop onc ycar