Question: Suppose there are two bonds, a 3-year bond with a coupon rate of 5% that pays interest twice a year, and a 10-year bond with

Suppose there are two bonds, a 3-year bond with a coupon rate of 5% that pays interest twice a year, and a 10-year bond with a coupon rate of 9% that pays interest once a year. Assuming that the current spot interest rate (discount rate) is 12% and the interest rate curve is horizontal, the investor's liability is paid in 7-year installments, and the annual payment is $1000. How much of each bond needs to be purchased to achieve immunity?

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