Please write the answer in clear details.

Bonus Problem 2 (Optional, 25 marks) An investor has $10000 and would like to invest the capital for 5 years. To do so, the investor develop a bond portfolio using the following two zero-coupon bonds: - Bond A: 2 year zero coupon bond with face value $1000. - Bond B:10 year zero coupon bond with face value $1000. The term structure is assumed to be flat and the current annual effective interest rate is 4%. You are given that - The investor expects that the interest rate is likely to go up and the interest rate change in the coming 6 years will not be more than 2%. - The investor is seeking for annual return strictly higher than 4% (provided that his forecast is correct). On the other hand, the investor demands for a minimum annual return of 3.6%. (a) Which of the following portfolios will be the most appropriate for the investor? Provide full justification to support your answer. A. $2000 invested in Bond A and $8000 invested in Bond B B. $3500 invested in Bond A and $6500 invested in Bond B C. $6000 invested in Bond A and $4000 invested in Bond B D. $8500 invested in Bond A and $1500 invested in Bond B (-)Hint: You need to ensure that the portfolio can achieve all investor's investment goals) (b) The investor constructed the portfolio as chosen in (a). Suppose that the interest rate after 1 year has dropped to 3% and the investor thinks that the interest rate will continue to drop. What should be the strategy chosen by the investor? Explain your