Is Jun 15, 2017 and that you administer a pension fund. You anticipate requiring $4,000,000 to meet cash flow demands in exactly 6 years. For the sake of simplicity, assume that only the 1.5s of 2020 and 4.75s of 2046 listed in Table 1 are available to you at the prices and with the durations given in Table 1.

Table 1

Settlement date	Maturity date	Coupon	Yield to Maturity	Frequency	Basis	Redemption	Duration	Price
15-Jun-17	15-Jun-20	0.0150	0.0148	2	0	100	2.94	100.06
15-Jun-17	15-Jun-20	0.0325	0.0148	2	0	100	2.89	105.18
15-Jun-17	15-Jun-37	0.0350	0.0276	2	0	100	14.88	111.32
15-Jun-17	15-Jun-46	0.0475	0.0301	2	0	100	17.82	133.50

QUESTIONS:

a. What is the proportion of each security that you need to hold in order to immunize your portfolio (at least momentarily) against a change in interest rates?

b. What will be the yield-to-maturity on this portfolio?

c. How much do you need to invest in each bond now to have the $4 million in 6 years?

d. What are the key assumptions that underlie this simple immunization strategy?

e. Why will you need to rebalance this portfolio over time to maintain its immunity?