You have a liability (obligation) with one payment of $6,000 due in 10 years. Show that you can immunize yourself only by Bond 1 and not by Bond 2. Show that if interest rate changes by 1% (immediately after you buy the bonds) Bond1 terminal value remains almost unchanged, near $6,000. (whereas the terminal values for Bond 2 depart much more significantly from $6,000) The ongoing rate (YTM) is 6%, so assume the rate could jump to 7% and can go down to 5%. Reminder: the terminal value includes the value of the re-invested coupons and the price of the bonds at time 10. Hint: first verify that when the interest rate DOESN'T change (i.e. stays at 6%) you do have terminal values of exactly $6,000 for both Bond 1 and Bond 2. This will assure that you have the correct percentage of face value bought. Only then can you check whether the terminal value stays constant for Bond 1 while it does not for the Bonds 2. Yield to maturity 6.0% Current Date 6/16/2022 Present Value of Future Obligation: $3,350.37 Bond 1 Bond 2 Coupon rate 7.00% 6.000% Maturity 6/16/2037 6/16/2052 Face value 1,000 1,000 Number of years to Maturity 15.00 30