Suppose you set up a contingent immunization strategy for a $50 million fund you are managing. Suppose the horizon date for the fund is four years, the immunization rate is 10%, the minimum target rate is 8%, the yield curve is flat at 10%, and all investment cash flows are annual.

a. What is the current minimum target value and safety margin?

b. Suppose you invest in a 15-year, 10% annual coupon bond selling at par.

What would be the value of your fund and your safety margin if a year later rates were at 8% on all maturities? What would your contingent immunization strategy be in this case? What would your total return be if you immunized?

c. Suppose you invest in a 15-year, 10% annual coupon bond selling at par.

What would be the value of your fund and your safety margin if a year later rates were at 11.97% on all maturities? What would your contingent immunization strategy be in this case? What would your total return be if you immunized?