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A portfolio manager has decided to pursue a contingent immunization strategy over a three-year time horizon. She just purchased at par $84 million worth of 9.2% semi-annual coupon, 10-year bonds. Current rates of return for immunized strategies are 9.2% and the portfolio manager is willing to accept a return of 8.5%. Given that the required terminal value is $107,829,022, and if interest rates rise to 11% immediately, which of the following is most accurate? The dollar safety margin is: A. negative (-$3,237,038) and the manager must switch to immunization. B. negative (-$3,237,038) and the manager can continue with contingent immunization. C. positive ($1,486,948) and the manager can continue with contingent immunization. |