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What is the price of a bond that has the following conditions: At the end of the 4th year there is a coin flip, Heads
What is the price of a bond that has the following conditions:
At the end of the 4th year there is a coin flip, Heads the bond matures in the 5th year, Tails it matures in the 10th year.
Assume a flat Treasury yield curve at 3%. The required return on this bond is at a 125 basis points premium.
Interest payments: No payments in year 1 and 2
Years 3, 5, 7, 9, 11, 13, 15, 17, 19 = 4%
Years 4, 6, 8, 10, 12, 14, 16, 18, 20 = 3%
Assume annual payments and $1000 par
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