What is the annual effective yield rate for the investment


Jolene must pay liabilities of 1000 due 6 months from now and another 3000 due one year from now. There are two available investment:

Bond I is a 6-month bond with face amount and redemption value of 1000, a 7% semiannual coupons, and a 5% nominal annual yield rate convertible semiannually.

Bond II is a one-year bond with face amount and redemption value of 1000, a 4% semiannual coupon, and a 6% nominal annual yield rate convertible semiannually.

Suppose that Jolene buys x of Bond I and y of Bond II in order to exactly (absolutely) match the liabilities.

What is the annual effective yield rate for the investment in the bonds required to exactly (absolutely) match the liabilities?

(A) 5.91% (B) 5.93% (C) 5.95% (D) 5.97% (E) 5.99%

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Financial Management: What is the annual effective yield rate for the investment
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