Year 0 Yield to maturity in year 0 Obligation of $1,948.72 is due in 7 years 10% Bond 4 12.0% Coupon rate Maturity Face value Bond 1 3.0% 20 1,000 Bond 2 8.0% 10 1,000 Bond 3 11.0% 9 1,000 I 8 1.000 Bond price Face value equal to $1.000 of market value Duration Year 7 Yield to maturity year 7 10% Bond 1 Bond 2 Bond 3 Bond 4 Portfolio Bond price Reinvested coupons Total Multiply by percent of face value bought Product (Terminal value) (a) Fill out the tables above (year 0 and year 7) and explain which bond would you use to meet the obligation? (5 pts) (b) What other two bonds could you use in a portfolio to meet the obligation at any interest rate in year 7 and in what proportion? List all possibilities. Assume only long position in each bond is allowed. (10 pts) Year 0 Yield to maturity in year 0 Obligation of $1,948.72 is due in 7 years 10% Bond 4 12.0% Coupon rate Maturity Face value Bond 1 3.0% 20 1,000 Bond 2 8.0% 10 1,000 Bond 3 11.0% 9 1,000 I 8 1.000 Bond price Face value equal to $1.000 of market value Duration Year 7 Yield to maturity year 7 10% Bond 1 Bond 2 Bond 3 Bond 4 Portfolio Bond price Reinvested coupons Total Multiply by percent of face value bought Product (Terminal value) (a) Fill out the tables above (year 0 and year 7) and explain which bond would you use to meet the obligation? (5 pts) (b) What other two bonds could you use in a portfolio to meet the obligation at any interest rate in year 7 and in what proportion? List all possibilities. Assume only long position in each bond is allowed. (10 pts)