A company has liabilities of $1200 and $2450 due at the end of years 1 and 2respectively. 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

C

1027.65

D

1030.41