BULLET IMMUNIZATION. FOR THIS AND THE NEXT TWO QUESTIONS. A portfolio manager wishes to invest $9,734 in bonds and desires to earn 4.2% over the next 4.5 years. The FV of this investment, which is $11,714, will be used to meet a payment obligation at that time. To immunize the investment, the manager can invest in a $10,000 face value bond currently selling for $9,734 with a coupon rate of 3.6% and 5 years to maturity. This bond's duration is 4.5 years. Assume the reinvestment rate will remain at 4.2% but only until end of Year 3, afterwards it is expected to fall to 4% in years 4 and 5. Calculate total interest received over the next 4.5 years. Hint. Please design a simple spreadsheet such as the one shown in the video on Bullet Immunization. Be aware that the last investment period is only half a year. Therefore use one half of YTM in Year 4.5 for compounding. The following table is a guide: Reinvestment rate: Coupon pmt received 1) $1,742 2) $9,980 4) $11,714 5) None of the above YEAR 3 4 4.5

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to t…