Bond A, a two-year, twelve percent coupon issue can be purchased for $957.99. Bond B, a two-year, five-percent coupon issue can be purchased for $840.24.

a. What would be the value of a $1000 face value pure discount bond maturing In two years?

b. The two-year pure discount bond in part c can be replicated with a portfolio comprised of bonds A and B. What should the portfolio weights of these bonds be? (Short selling is permitted.)

c. I need to raise $15,000 at the end of year one and $12,000 at the end of year two to repay some debts. How much should I buy (sell) of each of Bonds A and B to exactly match my debt payments? (Fractional purchases and sales of bonds are permitted.)