Question 2 3.75 pts You buy a bond for $1000 today that promises interest of $100...

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Question 2 3.75 pts You buy a bond for $1000 today that promises interest of $100 in one year plus the return of your princip

business finance

Answer 1

Answer #1

EXPECTED VALUE OF BOND AFTER A YEAR = SUM(PROB X RETURN)

EXPECTED VALUE OF BOND AFTER A YEAR = (0.05 X 0) +(0.95 X 1100) = 1045

SO EXPECTED RETURN ON BOND = (1045-1000)/1000 = 4.5%

ANSWER : 4.50 (Thumbs up please)

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Answer 2

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