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An insurance company has expected liabilities of 5,000 and 10,000 at the end of year 1 and year 2 respectively. The following annual coupon bonds
An insurance company has expected liabilities of 5,000 and 10,000 at the end of year 1 and year 2 respectively. The following annual coupon bonds are available:
Maturity (years) Annual Coupon Rate (r) Annual Effective Yield Par Value
1 0% 10% 1000
2 12% 12% 1000
Determine the cost to the company today to match its expected liabilities exactly.
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