Joe should purchase to exactly match the liabilities

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Reference no: EM131933989

Joe must pay liabilities of 1000 due 6 months from now and another 1000 due one year from now. There are two available investments:

• Bond 1: A 6-month bond with face amount of 1000, an 8% coupon rate convertible semiannually and a 6% yield rate convertible semiannually.

• Bond 2: A 1-year bond with face amount of 1000, a 5% coupon rate convertible semiannually and a 7% yield rate convertible semiannually.

Calculate the amount of each bond that Joe should purchase to exactly match the liabilities.

Reference no: EM131933989

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