You are managing a fund which has a number of liabilities due in the coming years. The first is an amount of $125,200 due in four years, $143,900 due in six years, and a final obligation worth $208,000, which is due for payment in seven years. You would like to ensure that your fund is able to meet these liabilities, so you decide to formulate an immunisation strategy to ensure this can take place. The yield to maturity is 7% p.a. Required: a) What would be the maturity of a single zero-coupon bond, and its face value, which would immunise the overall obligation? (2 Marks) b) You have identified two bonds which you would like to use as part of an immunisation strategy. The first is an 8% coupon bond which pays coupons semi-annually, and 1 year to maturity. The second is a zero-coupon bond with 9 years until maturity. Assume the face value of each of the bonds is $1000. Calculate the weighting and the number of each bond required in order to immunise the overall obligation. Assume for this part, that bond yields are 7% p.a. (5 Marks) c) Show what happens to the net position of your portfolio in b), if bond yields change immediately to 6% p.a.? (3 Marks) You are managing a fund which has a number of liabilities due in the coming years. The first is an amount of $125,200 due in four years, $143,900 due in six years, and a final obligation worth $208,000, which is due for payment in seven years. You would like to ensure that your fund is able to meet these liabilities, so you decide to formulate an immunisation strategy to ensure this can take place. The yield to maturity is 7% p.a. Required: a) What would be the maturity of a single zero-coupon bond, and its face value, which would immunise the overall obligation? (2 Marks) b) You have identified two bonds which you would like to use as part of an immunisation strategy. The first is an 8% coupon bond which pays coupons semi-annually, and 1 year to maturity. The second is a zero-coupon bond with 9 years until maturity. Assume the face value of each of the bonds is $1000. Calculate the weighting and the number of each bond required in order to immunise the overall obligation. Assume for this part, that bond yields are 7% p.a. (5 Marks) c) Show what happens to the net position of your portfolio in b), if bond yields change immediately to 6% p.a