Question
Assume y1 = 1.5%, and also assume that the one-period spot rate next period can take the following two values with equal probability: y1u =
Assume y1 = 1.5%, and also assume that the one-period spot rate next period can take the following two values with equal probability: y1u = 2.02% and y1d = 1.11%. Assume that the market price of risk =0.5. Use CAPM for bonds to calculate the current price of a two-period bond (M=100). Also, calculate the Sharpe ratio of the bond investment:
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International Financial Management
Authors: Cheol S. Eun, Bruce G.Resnick
6th Edition
71316973, 978-0071316972, 78034655, 978-0078034657
