Your company has an obligation to pay $100,000,000 to a partner in 5 years. You decide to invest in an immunized bond portfolio to assure that you will have at least that much in five years. There are two bonds available to you. The first bond has a 5-year maturity and pays 10% coupon once a year and has $1,000 par value. The second bond will mature in 10 years, also pays 10% coupon once each year and has $1,000

a. Design the immunization strategy to satisfy your need. Show exactly how much you will invest and in which bond (or bonds).

b. Show what will happen to the terminal value of your investment if immediately after you form your immunized portfolio interest rate jumps to 11% and remains at that rate for 5 years?

c. Show what will happen to the terminal value of your investment if immediately after you form your immunized portfolio interest rate declines to 9% and remains at that rate for 5 years?