You are given the following prices and cash flows associated with bonds. CF stands for cash flow. Bond Price Today CF Year 1 CF Year 2 CF Year 3 A 105.185 10 10 110 B 90.371 100 0 0 C 91.784 5 105 0 D X 15 15 115 What is the current price of Bond D as per the no-arbitrage principle? In other words, what is the value of X?
You are given the following prices and cash flows associated with bonds. CF stands for cash flow. Bond Price Today CF Year 1 CF Year 2 CF Year 3 A 105.185 10 10 110 B 90.371 100 0 0 C 91.784 5 105 0 D X 15 15 115 What is the current price of Bond D as per the no-arbitrage principle? In other words, what is the value of X?
Chapter4: Time Value Of Money
Section4.6: Perpetuities
Problem 2ST
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You are given the following prices and cash flows associated with bonds. CF stands for cash flow.
|
Price Today |
CF Year 1 |
CF Year 2 |
CF Year 3 |
---|---|---|---|---|
A |
105.185 |
10 |
10 |
110 |
B |
90.371 |
100 |
0 |
0 |
C |
91.784 |
5 |
105 |
0 |
D |
X |
15 |
15 |
115 |
What is the current price of Bond D as per the no-arbitrage principle? In other words, what is the value of X?
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