A company has liabilities of $1,000 due in 6 months and $1,000 due in one year.

The assets available are:

Bond A: A one-year $1,000 par bond with 4% coupons paid semiannually, with an annual effective yield of 6%

Bond B: A 6 month $1,000 par bond with 6% coupon paid semiannually, with an annual effective yield of 8%

What is the total purchase price of the portions of each bond that must be bought to exactly match the liabilities?

1. $1,854

2. $1,870

3. $1,906

4. $1,929

5. $1,954