Question 1 [Revision on how to calculate and use Macaulay's Duration in Classical Immunization] This question relates to classical hedging of a portfolio of liabilities. Consider a stream of liabilities as follows. Assume that Yield to maturity for all bonds and liabilities = 7%. a) Why does the liability stream need to be hedged? Explain using an example. b} Explain why a stream of liabilities can be hedged using Macaulay's Duration? c) Calculate the Macaulay's Duration of Bond A. d} Create a classically immunized portfolio of bonds to hedge this stream of liabilities. Use all three bonds but fix the allocation of Bond C to 20%. Calculate the investments in Bonds A and B for this portfolio of Bonds. Question 2: Yield curve provides information regarding current market consensus. Investors are able to take advantage of future yield curve movements. Investors have observed three types of yield curve movements: (i) Shift, (ii) Twist, and (iii) a Butterfly (see page 282). Explain each of these movements