SOA Exam FM Sample Question 192
Study guide: Exam FM-2
A construction firm is facing three liabilities of 1000, due at times 1, 2, and 3 in years. There are three bonds available to match these liabilities, as follows:
- Bond I: A bond due at the end of period 1 with a coupon rate of 1% per year, valued at a annual effective yield rate of 14%.
- Bond II: A bond due at the end of period 2 with a coupon rate of 2% per year, valued at a annual effective yield rate of 15%.
- Bond III: A zero-coupon bond due at time 3 valued at a periodic effective yield rate of 18%.
Calculate the face value of each bond that should be purchased to exactly match the liabilities.
- A) Bond I: 970.68, Bond II: 980.39, Bond III: 1000.00
- B) Bond I: 970.68, Bond II: 1000.00, Bond III: 980.39
- C) Bond I: 980.39, Bond II: 970.68, Bond III: 1000.00
- D) Bond I: 1000.00, Bond II: 980.39, Bond III: 970.68
- E) Bond I: 1000.00, Bond II: 1000.00, Bond III: 1000.00
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