Tomorrow Financial Associates is required to make a $500,000 payment in exactly four years. To cover this liability, they have purchased a two-year zero-coupon bond with redemption amount $343,398.73 and a ten-year zero-coupon bond with redemption amount $162,782.52. We assume that there is a flat yield curve and that the current interest rate is 4.5%. Is this portfolio fully immunized? In on year, will it be fully immunized? What will the surplus be if the interest rates rise immediately to 8%? What will the surplus be in one year if interest rates are 8%?

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