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Leland Price must pay $5,000 six months from now and $10,000 one year from now. He wishes to purchase bonds so that together they form
Leland Price must pay $5,000 six months from now and $10,000 one year from now. He wishes to purchase bonds so that together they form a portfolio of assets that exactly match his liabilities. Available bonds are a six-month zero-coupon $1,000 bond that has a 3.0225% annual yield, and a one-year $1,000 par-value 6% bond with semiannual coupons and a 4% nominal yield (convertible semiannually). How much must Leland pay to purchase the bonds? Assume that he may buy any quantity he wishes of each bond.
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