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Assume there is a 25% chance that the interest rate decreases to 4%; a 25% chance the interest rate decreases to 6%; a 25%
Assume there is a 25% chance that the interest rate decreases to 4%; a 25% chance the interest rate decreases to 6%; a 25% chance the interest rate increases to 14%; and a 25% chance the interest rate increases to 16%. What is the actual expected (net) payoff of this bond? What is the approximate expected (net) payoff of this bond? How do your results relate to the concept of Convexity?
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Actual Expected Net Payoff The actual expected net payoff of this bond is 10 calculated by taking th...
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Introduction To Management Science and Business Analytics A Modeling And Case Studies Approach With Spreadsheets
Authors: Frederick S. Hillier, Mark S. Hillier
7th Edition
1260716295, 9781260716290
