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Latest revision as of 19:46, 21 March 2026
Joe must pay liabilities of 1,000 due 6 months from now and another 1,000 due one year from now. There are two available investments:
Bond I: A 6-month bond with face amount of 1,000, an 8% nominal annual coupon rate convertible semiannually, and a 6% nominal annual yield rate convertible semiannually;
Bond II: A one-year bond with face amount of 1,000, a 5% nominal annual coupon rate convertible semiannually, and a 7% nominal annual yield rate convertible semiannually.
Calculate the amount of each bond that Joe should purchase to exactly match the liabilities.
- Bond I: 1, Bond II: 0.97561
- Bond I: 0.93809, Bond II: 1
- Bond I: 0.97561, Bond II: 0.94293
- Bond I: 0.93809, Bond II: 0.97561
- Bond I: 0.98345, Bond II: 0.97561
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.