Question

Lily owns a $1,000 par zero-coupon bond that has six years of remaining maturity. She plans on selling the bond in one year and believes that the required yield next year will have the following probability distribution:

prob	required yield
0.1	6.10
0.2	6.75
0.2	7.20
0.3	7.25
0.1	7.45
0.1	7.65

a. What is the expected required yield of the bond at the time of sale?

b. What is the standard deviation of the required yield?

Answer 1