Find the yield rate of this investment strategy

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Reference no: EM131068393

A corporation is going to have to pay a debt of $1,200,000 after one year, a debt of $1,500,000 after 2 years and $2,000,000 after 3 years. In order to set up an absolute matching strategy to pay these debts, the corporation may purchase:

A one year bond with 4% annual coupons

A two year bond with 2% annual coupons

A three year bond with 3% annual coupons

The spot rates are s1=5%, s2=4% and s3=3%. Find the amount the corporation will have to invest now in each of these bonds to set up this strategy. Find the yield Rate of this investment strategy.

Reference no: EM131068393

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