Suppose we have two zero-coupon (discount) bond ($1000 face value) with remaining time of 1 year and 4 year as the liabilities. Hypothetically how can we form a bullet strategy to immunize against the interest rate risk? Assume the yield curve is 3% flat.

Answer rating: 100% (QA)

In order to immunize against interest rate risk under a bullet strategy you would typically need a single bond whose maturity matches the duration of ... View the full answer