Welcome to Westonci.ca, your go-to destination for finding answers to all your questions. Join our expert community today! Our Q&A platform provides quick and trustworthy answers to your questions from experienced professionals in different areas of expertise. Discover in-depth answers to your questions from a wide network of professionals on our user-friendly Q&A platform.
Sagot :
The price of a two-year coupon bond with a 10% coupon rate is $970
We build a replicating portfolio that has the same cash flows as the coupon bond with a 10% coupon rate. These cash flows are $100 in period 1 and $1100 at maturity. Therefore, we need to buy 0.1 units of the one-year zero coupon bond which amounts to a cost of $90. Furthermore, to generate the same cash flow in period 2 as for the coupon bond, we need to buy 1.1 units of the two-year zero coupon bond which requires a payment of $880. Together, the cost for the portfolio amounts to $90+$880=$970.
To know more about bond click here-
https://brainly.com/question/22504216
#SPJ4
Thank you for choosing our platform. We're dedicated to providing the best answers for all your questions. Visit us again. Thank you for visiting. Our goal is to provide the most accurate answers for all your informational needs. Come back soon. Westonci.ca is committed to providing accurate answers. Come back soon for more trustworthy information.
