The yield on a default-free four-year zero-coupon bond is 3%; the yield on a default-free five-year zero-coupon bond is 4.5%. The bonds have a face value of $1000 and are traded in an open market. All bonds can be either bought or short-sold. You are a money manager and know that you will have a net inflow of $100,000 four years from now, and an obligation (i.e. a net outflow) of $100,000 one year later (i.e. five years from now). Once you get your inflow, you plan to invest part of this inflow (as much as necessary) in risk-free bonds for a year, and immediately pay the rest to your investors in the form of a profit. You would like to hedge the interest-rate risk that is involved in this future bond investment, in order to be able to pre-announce your expected profit today, but also ensure that your obligation is covered.

1)Based on today's yields, what is the no-arbitrage yield of a one-year forward-rate agreement starting four years from now? Enter your number in whole percentage points without a percent sign. Round to two decimals.

2)In the same situation as above, now assume that no such forward-rate agreements are being offered in the market. How can you construct one yourself (i.e. replicate one), in order to hedge your interest-rate risk? Begin by describing the position in the five-year bonds you need to take. The five-year bonds need to be:

		A.Bought.
		B.Short-sold.

3)In the position you described above, how many bonds do you need to either buy or short-sell? Enter only the number of bonds. You can also buy or sell fractions of bonds. Round to four decimal places.

4)What is the total Dollar value (i.e. price) of the above bond position today? Enter a Dollar amount without a Dollar sign. Round to the nearest cent.

*ANSWER ALL FOUR QUESTIONS PLEASE,