Question
Jane has two tuition payments of $15,000 due 6 months from now and 1 year from now. She has two investments available to her. The
Jane has two tuition payments of $15,000 due 6 months from now and 1 year from now. She has two investments available to her.
The first is a 6-month bond with face amount $1000, a 6% nominal annual coupon rate convertible semi-annually, and a 6% nominal annual yield rate convertible semi-annually.
The second is a 1-year bond with face amount 1000, a 2.8% nominal annual coupon rate convertible semi-annually, and a 5% nominal annual yield rare convertible semi-annually.
If Jane invests to exactly match her liabilities, how much cash must she invest now in each bond?
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