1. Suppose that in the coming 2 years, the prevailing interest rates are expected to go up by 100 basis points and you are concerned. Show how you could hedge away the interest rate risk by using an interest rate swap, assuming that the fund by may represented by a single 5-year par bond on the $18.4 billion net assets with semi-annual 5% coupon payments starting from the current date.
2. In your explanation, you may assume a scenario in which a flat yield curve increases uniformly across all terms by 25 basis points per half-a-year.