An investor purchases a portfolio of green bonds with 5 years to maturity that pays coupons annually.
(i) Clearly outline the steps to be taken by the investor in order to immunize the portfolio with respect to the duration.
(ii) Suppose that you are at the end of the first year and yields have gone up by 1%. Discuss how the immunization strategy works to protect the portfolio from interest rate changes.
(iii) Suppose that we relax the assumption of a flat term structure. How will this affect our immunization steps outlined in (i)?