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QUESTION 1 Assume the yield curve is flat at 4.75% pa nominal. Suppose we have a liability of $650,000 due in exactly 4 years' time.

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QUESTION 1 Assume the yield curve is flat at 4.75% pa nominal. Suppose we have a liability of $650,000 due in exactly 4 years' time. We want to immunize the liability by investing in a combination of 3-year coupon-paying bonds paying 6.75% annual coupons and 6-year zero coupon bonds. (a) What is the price of the 3-year bond? [Select] (b) What is the price of the 6-year bond? (Select] > (c) What is the present value of the liability? Select] (d) What is the Macaulay Duration of the 3-year bond (in years)? [ Select] (e) What is the Macaulay Duration of the 6-year bond (in years)? [ Select ] (f) What is the Macaulay Duration of the liability (in years)? [Select] (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] (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 ]

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