Assume the term structure of

interest rates is flat at 5%. The following bonds and liabilities are given:

- Bond

A: A zero-coupon bond with a face value of $100 and a time to maturity of 3

years.

- Bond B: A zero-coupon bond with a

face value of $100 and a time to maturity of 6 years.

- Bond

C: A zero-coupon bond with a face value of $100 and a time to maturity of 10

years.

-

Liability X: A one-time liability of $100 maturing in 4 years.

-

Liability Y: A one-time liability of $100 maturing in 8 years.

Suppose you have

liability X and want to immunize it using bonds B and C. How would you combine

the two bonds to cover the liability?