3. (16 points) Answer the following in complete sentences. I am not looking for a numerical example. (a) Suppose Bond 1 and Bond 2 have annual coupons, their face amount is equal to their redemption amount, they have the same term, the same face amount, and are priced to yield the same rate. If Bond 1 has larger coupons than Bond 2, does Bond 1 have a higher duration, a lower duration, or the same duration as Bond 2? Explain why. (b) Suppose Bond 1 and Bond 2 have annual coupons, their face amount is equal to their redemption amount, they have the same term, the same same coupon rate, and are priced to yield the same rate. If Bond 1 has a face amount that is 20% larger than Bond 2, does Bond i have a higher duration, a lower duration, or the same duration as Bond 2? Explain why. (c) Suppose you have a liability of $1,000 due at time 4. Suppose the only assets available to you are a 3 year zero coupon bond and a 7 year zero coupon bond. Is exact matching possible? Explain why. (d) Suppose you have a liability of $1,000 due at time 4. Suppose the only assets available to you are a 3 year zero coupon bond and a 7 year zero coupon bond. Is immunization possible? Explain why. 3. (16 points) Answer the following in complete sentences. I am not looking for a numerical example. (a) Suppose Bond 1 and Bond 2 have annual coupons, their face amount is equal to their redemption amount, they have the same term, the same face amount, and are priced to yield the same rate. If Bond 1 has larger coupons than Bond 2, does Bond 1 have a higher duration, a lower duration, or the same duration as Bond 2? Explain why. (b) Suppose Bond 1 and Bond 2 have annual coupons, their face amount is equal to their redemption amount, they have the same term, the same same coupon rate, and are priced to yield the same rate. If Bond 1 has a face amount that is 20% larger than Bond 2, does Bond i have a higher duration, a lower duration, or the same duration as Bond 2? Explain why. (c) Suppose you have a liability of $1,000 due at time 4. Suppose the only assets available to you are a 3 year zero coupon bond and a 7 year zero coupon bond. Is exact matching possible? Explain why. (d) Suppose you have a liability of $1,000 due at time 4. Suppose the only assets available to you are a 3 year zero coupon bond and a 7 year zero coupon bond. Is immunization possible? Explain why