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A commodity coupon bond pays 5 dollars in period 1. It pays 10 dollars in period 2 and in period 3 it pays the dollar
A commodity coupon bond pays 5 dollars in period 1. It pays 10 dollars in period 2 and in period 3 it pays the dollar value of the commodity price. Each period is one year. The convenience yield is 10% and the riskless interest rate is 10%. u and d are given by 1.2 and 1/1.2 respectively. The lattice of commodity prices is given below.
Value the commodity coupon bond. Assume the firm that issues the bond is default free. Show all steps in your computations.
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