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#1
08-12-2009, 11:23 AM
 Louis Rich Guest Posts: n/a
FM question

If you have two liabilities 25,000 in year one and 20,000 in year two which of the following combination of bonds satisfies the liabilities and costs the least at time 0.

There were three main bonds:

1 year bond with 6.75% annual coupon.
2 year bond with 4.5% annual coupon.
2 year zero coupon bond with at 5.0%

The company also had the option of a 6.0% one year zero coupon bond starting at time 1. In order to obtain this bond they would have to pay 3% of it's purchase price at time 0.

The answers all ranged around \$40,000

A. 41250
B 41390
C 41550
D 41660
E 41750
http://www.actuarialoutpost.com/actu...4&postcount=23

Anyone have a solution?
#2
08-12-2009, 11:41 AM
 Noumenon84 Philosopher King Join Date: Jan 2009 Studying for FAP.... eventually Posts: 954

What does it mean to "satisfy the liabilities and costs the least at time 0."
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P FM MLC MFE C
#3
08-12-2009, 12:21 PM
 Louis Rich Guest Posts: n/a

Quote:
 Originally Posted by Noumenon84 What does it mean to "satisfy the liabilities and costs the least at time 0."
I dunno, I copied it from that thread word for word.
#4
08-12-2009, 12:59 PM
 Noumenon84 Philosopher King Join Date: Jan 2009 Studying for FAP.... eventually Posts: 954

Quote:
 Originally Posted by Louis Rich I dunno, I copied it from that thread word for word.
never-mind I see what it means. I don't know how I read that wrong
However, I am not sure I will be of help. i'll try
__________________
Sum ergo Cogito

P FM MLC MFE C

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