Smith must pay liabilities of 1,200 due 6 months from now and another 1,050 due one year from now. There are two available investments:

a 6-month bond with face amount of 1,000 a 3% nominal annual coupon rate convertible semiannually, and a 8% nominal annual yield rate convertible semiannually; and

a one-year bond with face amount of 1,000, a 7% nominal annual coupon rate convertible semiannually, and a 4% nominal annual yield rate convertible semiannually.

What is the annual effective yield rate for investment in the bonds required to exactly match the liabilities?

5.49%

5.31%

4.85%

5.35%

4.6%