A company has liabilities of $10,000 due in 1 year and $20,000 due in 2 years. The company would like to cash flow match these liabilities with a combination of the following assets:

a 2-year bond with annual coupons of 5% yielding 4%

a 1-year bond with annual coupons of 6% yielding 3%

What is the IRR on the asset portfolio created?

1. 3.00%

2. 3.20%

3. 3.40%

4. 3.60%

5. 3.80%