Question
For the following question, suppose that you have the following bonds for valuation purposes: 1-year ZCB, face value 1, priced at 0.98 2 year ZCB,
For the following question, suppose that you have the following bonds for valuation purposes:
1-year ZCB, face value 1, priced at 0.98
2 year ZCB, face value 1, priced at 0.95
3-year ZCB, face value 1, priced at 0.92
4-year ZCB, face value 1, priced at 0.88
5-year ZCB, face value 1, priced at 0.83 20. As a result of a court case, a (risk-free) company is ordered to pay you $100 per year for 5 years, with the first $100 to be delivered a year from now. The company offers you a few options for settlement. Which is the best in terms of value?
a) The original order of $100 per year for 5 years, with the first payment one year from now
b) A lump sum payment of $450 now
c) A payment of $200 in one year and $270 in two years
d) A payment of $200 now and $265 in one year
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