QUESTION 1 Assume annual compounding and that the yield curve is flat at 4.00% pa nominal. Suppose we have a liability of $700,000 due in exactly 8 years time. We want to immunize the liability by investing in a combination of 3-year coupon-paying bonds paying 4.50% annual coupons and 11-year zero coupon bonds.

(e) What is the Macaulay Duration of the 11-year bond (in years)? [ Select ] ["10.577", "None of the other answers is correct", "7.692", "11.000", "8.000"] (f) What is the Macaulay Duration of the liability (in years)? [ Select ] ["7.692", "7.843", "8.000", "None of the other answers is correct", "2.885"] (g) What is the first equation in the system of equations that needs to be solved to find the immunizing portfolio, where q_Z is the number of zero-coupon bonds and q_C is the number of coupon-paying bonds in the immunizing portfolio? [ Select ] ["q_Z*101.39+ q_C*64.96=700,000.00", "None of the other answers is correct", "q_Z*64.96+ q_C*101.39=700,000.00", "q_Z*64.96+ q_C*101.39=511,483.14", "q_Z*101.39+ q_C*64.96=511,483.14"] (h) What is the second equation in the system of equations that needs to be solved to find the immunizing portfolio, where q_Z is the number of zero-coupon bonds and q_C is the number of coupon-paying bonds in the immunizing portfolio? [ Select ] ["q_Z*714.54+ q_C*291.35=4,091,865.15", "q_Z*194.87+ q_C*811.10=4,091,865.15", "q_Z*291.35+ q_C*714.54=4,091,865.15", "None of the other answers is correct", "q_Z*519.66+ q_C*304.16=5,600,000.00"]