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A firm has liabilities of $98 in one year, $100 in two years, and $107 in three years. The firm exactly matches its liabilities by
A firm has liabilities of $98 in one year, $100 in two years, and $107 in three years. The firm exactly matches its liabilities by purchasing the following zero or annual coupon bonds redeemable at par:
Bond | Maturity | Par Value | Coupon Rate | Effective Yield |
---|---|---|---|---|
A | 1 year | 100 | 5% | 3% |
B | 2 years | 100 | 0% | 4% |
C | 3 years | 100 | 4% | 5% |
Find the number of units of Bond A that must be purchased to match the liabilities exactly
(A) 0.894
(B) 0.897
(C) 0.913
(D) 0.933
(E) 0.959
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