Restula 1 idur A5. Suppose that the current YTM is 10% and assume semi-annual compounding. We have a liability to pay $10,000 in 3 years. In order to construct a hedged portfolio, we can use the bonds as follows: a) Calculate the prices and the modified durations of bond A and B. b) We want to construct an asset portfolio by purchasing bond A and B in a way that the value and duration of the asset portfolio and the liability coincide (immunization). How many bonds do we need to buy? You do not need to consider convexity matching c) d) Suppose that yiclds suddenly drop from 10% to 9%. Construct a table for checking the performance of immunization. You can use the following table. Restula 1 idur A5. Suppose that the current YTM is 10% and assume semi-annual compounding. We have a liability to pay $10,000 in 3 years. In order to construct a hedged portfolio, we can use the bonds as follows: a) Calculate the prices and the modified durations of bond A and B. b) We want to construct an asset portfolio by purchasing bond A and B in a way that the value and duration of the asset portfolio and the liability coincide (immunization). How many bonds do we need to buy? You do not need to consider convexity matching c) d) Suppose that yiclds suddenly drop from 10% to 9%. Construct a table for checking the performance of immunization. You can use the following table