Q1. A bank wishes to establish a fund that will be worth $80 million in 4 years time. They plans to follow a duration-matching approach using a 3-year zero-coupon bond and a 5-year bond paying a coupon rate of 12% pa. The 5-year bond pays coupons annually. Both bonds are currently priced to yield 6% pa.

A) How much should they invest in the 3-year bond?

B) How much should they invest in the 5-year bond?