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Example Using the Risk Premium to Compute a Price Problem Consider a risky bond with a cash flow of $1100 when the economy is strong

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Example Using the Risk Premium to Compute a Price Problem Consider a risky bond with a cash flow of $1100 when the economy is strong and $1000 when the economy is weak. Suppose a 1% risk premium is appropriate for this bond. If the risk-free interest rate is 4%, what is the price of the bond today? ULIKE

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