point A and B are answered! Please ONLY solve point C and D.

point A and B are answered! Please ONLY solve point C and D.

Round your answers to two decimal points, and don't round intermediate calculations. Problem 1. Suppose that you have decided to fund a three-year liability with a portfolio consisting of positions in a twoyear zero-coupon bond (2YR) and a four-year zero-coupon bond (4YR). The current interest rate level is 10%. a) Compute the price of both bonds. Price of 2YR bond =$1,000/(1+0.10)2=$826.45 Price of 4YR bond =$1,000/(1+0.10)4=$683.01 b) Since our liability is a three-year liability, we want to immunize our portfolio by duration matching. Set up the portfolio, describing how many dollars you have to invest into each bond. 2YR weight 2+4YR weight 4=3 2YR weight =(43)/(42)=0.5 4YR weight =(320.5)/4=0.25 c) Immediately after you make your initial purchases, rates fall to 8%. If you do not rebalance you portfolio, what is your realized yield after three years? d) What is the duration of the portfolio after the drop in interest rates without rebalancing? e) How would you have to rebalance your portfolio