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A company must pay liabilities of $3,000 in 1 year and $5,000 in 3 years. Available are Bond A: 1-year with annual effective yield of
A company must pay liabilities of $3,000 in 1 year and $5,000 in 3 years. Available are
Bond A: 1-year with annual effective yield of 4%
Bond B: 2-year with annual effective yield of 5%
The 1-year forward rate starting in 2 years is 5.5%. Calculate the cost to create an investment portfolio that matches liabilities exactly.
(A) 7183
(B) 7225
(C) 7420
(D) 7450
(E) 7463
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