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Suppose that the effective 3-month risk-free interest rate is 3%. Consider a risk-free security that pays $45 in year 1, $55 in year 2, and
Suppose that the effective 3-month risk-free interest rate is 3%. Consider a risk-free security that pays $45 in year 1, $55 in year 2, and $65 in year 4. There are no other payments. Note that there is no risk associated with the cash flows. Find the fair value today of the security
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