PRACTICE PROBLEM: Ccile Perreaux is a junior analyst for an integrational wealth Management firm. Her super The following information relates to Questions 1-6 Margit Daasvand, asks Perreaux to evaluate three fixed-income funds as part of the firms god fixed-income offerings Selected financial data for the funds Aschel Permot, and Rosaise presented in Exhibit . In Perreaux's initial review, she assumes that there is no reinvestment income and that the yield curve remains unchanged. Exhibit 1. Selected Data on Fixed Income Funds 625 Aschel Perwol Rosaiso Current average bond price $117:00 591 50 594 60 Expected serage bead price in ce year (end of Year 1) 5114.00 $96.00 $97.00 Average modeled duration 7.07 7.38 6.99 Asetage coupon pas 53.63 $6,07 56.36 Preer wake of portal : 21sets (nions, $13633 568 30 $7438 Bood type Faed-coupoobeds 9396 3894 Floating compon bonds 29 383 175 Inice-ked bonds 39 2896 219 Quality AAA 655 159 BBB 355 % 639 50% B 20 2005 Not rated 09 0% 10% Vale of porto's equally (es) 59433 Vloe af borrowed funds (es) $12.00 Borrowing rate 28046 Retur ob ested funds 6209 After further review of the composition of each of the funds, Perreaux notes the following. Note 1 Aschel is the only fund of the three that uses leverage Note 2 Rosalso is the only fund of the three that holds a significant number of bonds with embedded options Daasvand asks Perreaux to analyze immunization approaches to liability-based mandates for a meeting with Villash Foundation. Villash Foundation is a tax-exempt client. Prior to the meeting Perreaux identifies what she considers to be two key features of a cash flow-matching approach Feature 1 It requires no yield curve assumptions Feature 2 Cash flows come from coupons and liquidating bond portfolio positions. Scared with Cancer Two years later, Daasvand learns that Villash Foundation needs $5,000,000 in cash to meet liabilities. She asks Perreaux to analyze two bonds for possible liquidation Selected data on the two bonds are presented in Exhibit 2 Exhibit 2. Selected Data for Bonds 1 and 2 Remaining may Bond 1 Bond Current market value 5,000,000 $5,000,000 Capital gain loss 400,000 - 400.000 Cooperate 2.05% 2.05 8 years 8 years levestment view Overvaked Undervloed Income tax rate 399 Capital gains tax rate 304 1. Based on Exhibit 1, which fund provides the highest level of protection against inflation for coupon payments