PLEASE ANSWER QUESTION 9 A and B:

Need answers from Q8 to complete

QUESTION 8 (use Excel to do this question) Assume you have four different bonds B1 - A two-year bond with a nominal rate of 2% per annum B2 - A five-year bond with a nominal rate of 3% per annum B3 - A ten-year bond with a nominal rate of 4 % per annum B4 - A twenty-year bond with a nominal rate of 5% per annum All these bonds pay annual coupons and have face values of $1,500. Calculate their present values, Macauly durations and convexities using a YTM of 3% (YTM = 0.03). (2 marks) QUESTION 9 (use Excel to do this question) Suppose a fund manager is committed to making annual payments of $15,000 for the next 20 years (an annuity). The fund manager uses a discount rate of 0.03 or 3 % pa. (a) What is the present value of these payments? (b) To fund these payments the fund manager must invest in the four bonds described in QUESTION 8. Assume that she is trying to minimize transaction costs; use the figures in QUESTION 8 to write the equations that would need to be satisfied to immunize the annuity described in this question. Note that the fund manager is concerned that the application of these conditions could result in only one or two different types of bonds being held. As this is considered risky she introduces a diversification condition whereby she must hold a minimum of five of each of B1, B2, B3 and B4. Note; these conditions will need to be considered in your equations. (2 marks)