Question: Please answer Question(b) 3. A company must pay a liability of $1,000 in 2 years. Zero coupon bonds with terms of 1 year and 4

Please answer Question(b) 3. A company must pay a liability of

Please answer Question(b)

3. A company must pay a liability of $1,000 in 2 years. Zero coupon bonds with terms of 1 year and 4 years are available for investment. The effective rate of interest is 7.5%. (a) How much of each bond should the company buy in order to achieve full immunization? (b) Show empirically that immunization has been achieved even for large changes in the interest rate. Take as an example a decrease in the interest rate to 0% and an increase to 100%

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