interest rates to 1%, and you just purchased a portfolio of illiquid yet risk-free 2-year bonds. Specically, just before

the crash you paid $944; 998 for a collection of 2-year, 3% coupon bonds with a total

face value of $1; 000; 000. The coupons are paid once each year.

Construct a perfect hedging portfolio of zero-coupon bonds that eliminates all interest

rate risk. Assume the yield curve is at (at 1%), and fairly priced zero coupon bonds

are available for purchase or short-sale at any maturity. For each hedging position,

report the price of the position, the sign of the cashow from your perspective, and the

aggregate face value in dollars.