Question
You are given the following prices and cash flows associated with bonds. CF stands for cash flow. Bond Price Today CF Year 1 CF Year
You are given the following prices and cash flows associated with bonds. CF stands for cash flow.
| Bond | Price Today | CF Year 1 | CF Year 2 | CF Year 3 |
|---|---|---|---|---|
| A | 105.185 | 10 | 10 | 110 |
| B | 90.371 | 100 | 0 | 0 |
| C | 91.784 | 5 | 105 | 0 |
| D | X | 15 | 15 | 115 |
What is the current price of Bond D as per the no-arbitrage principle? In other words, what is the value of X?
(Round-off your final answers to at least four decimal places. For intermediate steps, round-off to at least six decimal places, so that your final answer is as close as possible to mine.)
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Introduction To Mathematical Finance Discrete Time Models
Authors: Stanley R. Pliska
1st Edition
1557869456, 9781557869456
