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Liabilities of 1 each are due at the ends of periods 1 and 2. There are three securities available to produce asset income to cover
Liabilities of 1 each are due at the ends of periods 1 and 2. There are three securities available to produce asset income to cover these liabilities, as follows:
1) a bond due at the end of period 1 with coupon at rate 1% per period, valued at a periodic yield of 14%;
2) a bond due at the end of period 2 with coupon at rate 2% per period, valued at a periodic yield of 15%;
Determine the cost of the portfolio that exactly matches asset income to liabilities using bonds 1 and 2.
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