An insurance company issues a saving plan contract for $20,000 to its customers, which has a 10-year maturity and a fixed return of 5% per year. The financial manager of the company plans to fund the obligation using two debt instruments, which include 5-year zero-coupon bonds selling at a yield to maturity (YTM) of 5% per year, and also preferred stocks selling at par, paying a dividend rate of 5% per year annually. Answer the following questions.

(i) Describe how the insurance company immunizes its position for the first year.

(ii) Next year, assume that YTM will remain at 5%. Describe the rebalancing strategy for the immunized portfolio.