SOA Exam FM Sample Question 37
Study guide: Exam FM-2
Joe must pay liabilities of 1,000 due 6 months from now and another 1,000 due one year from now. There are two available investments:
Bond I: A 6-month bond with face amount of 1,000, an 8% nominal annual coupon rate convertible semiannually, and a 6% nominal annual yield rate convertible semiannually;
Bond II: A one-year bond with face amount of 1,000, a 5% nominal annual coupon rate convertible semiannually, and a 7% nominal annual yield rate convertible semiannually.
Calculate the amount of each bond that Joe should purchase to exactly match the liabilities.
- A) Bond I – 1, Bond II – 0.97561
- B) Bond I – 0.93809, Bond II – 1
- C) Bond I – 0.97561, Bond II – 0.94293
- D) Bond I – 0.93809, Bond II – 0.97561
- E) Bond I – 0.98345, Bond II – 0.97561
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