A company has liabilities of $1200 and $2450 due at the end of years 1 and...

 

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A company has liabilities of $1200 and $2450 due at the end of years 1 and 2 respectively. The only investments available are 1-year 5% annual coupon bonds and 2-year 6% annual coupon bonds and both redeemable at par. Given an annual effective rate of 3%, how much should the company invest in the 1-year bond in order to exactly (absolutely) match the assets and liabilities. Possible Answers A 981.34 B 1010.78 1027.65 1030.41 E 1034.29 A company has liabilities of $1200 and $2450 due at the end of years 1 and 2 respectively. The only investments available are 1-year 5% annual coupon bonds and 2-year 6% annual coupon bonds and both redeemable at par. Given an annual effective rate of 3%, how much should the company invest in the 1-year bond in order to exactly (absolutely) match the assets and liabilities. Possible Answers A 981.34 B 1010.78 1027.65 1030.41 E 1034.29

Answer rating: 100% (QA)

Ans Let us assume that face of 2 year bond purchased be ... View the full answer