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Question A At time 0.5, the price of $1 par of a zero maturing at time I will be either $0.96 or $0.98. The risk-neutral
Question A At time 0.5, the price of $1 par of a zero maturing at time I will be either $0.96 or $0.98. The risk-neutral probability of the each outcome is 50%. The current price of $1 par of a zero maturing at time 0.5 is 0.97. Zero maturing at time 1 Time 0 Time 0.5 $0.96 Zero maturing at time 0.5 Timeo Time 0.5 $1 $0.97 $1 $0.98 a) What is the price at time of the zero maturing at time 1 in the absence of arbitrage? b) Multiple choice question. Pick one answer. Question: Which of the two zeroes above has the higher expected return from time to time 0.5? Answer 1: The 0.5-year zero. Answer 2: The 1-year zero. Answer 3: They have the same true expected return. Answer 4: There is not enough information provided to tell
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