You are all Investment manager for Lemon County . You are given the following information about the yields of U. S. Treasury strips ( which are zero - coupon , or pure discount , bonds which pay $1oo at maturity ) : V1 = 390 , V = = 490, 12 0 = 6.196, and $20 = 6.090, where Vi is the yield - to - maturity on a ] - year strip . Assume that all cash flows are riskless and we can borrow and lend at the stated rates . You buy 50 , 000 30 - year strips and partially finance these by issuing 5 , 000 2 - year Strips ( i.E., You are borrowing money by promising to pay $500 , 000 = 5 , 000 * 5100 in two years )* ( a ) How much of Lemon County's money are you investing ( i.e . , what is the net investment ) ? ( b ) Suppose that one second after you make the above investments , the Federal Reserve Board announces that it is taking steps to raise interest rates . Assume that the yields on all of the strips immediately increase by one percentage point ( i.e., V 1 = 490 , 1 2 = 5%/0 , /20 = 7.19/6 , and / 30 = 7.090 ) . By how much ( in dollars and in percentage terms ) does the value of the county's net investment change due to the unexpected announcement