You own a discount bond that has 4 years of remaining maturity and $1000 face value. You
plan on selling the bond next year, and believe that the required yield next year will have the
following probability distribution:
Probability Required Yield
0.6 6.00%
0.4 7.00%

What is your expected price when you sell the bond next year?

I now have:
0,6 * 6% + 0,4 * 7% = 6,4 %
Next year will mature in three years. So our n = 3. And our yield is 0.064. These give the following bond price:
1000/(1,064^3) = 830,19$

Question

You own a discount bond that has 4 years of remaining maturity and $1000 face value. You 
plan on selling the bond next year, and believe that the required yield next year will have the 
following probability distribution: 
Probability Required Yield
0.6 6.00% 
0.4 7.00% 
   
What is your expected price when you sell the bond next year?

I now have: 
0,6 * 6% + 0,4 * 7% = 6,4 % 
Next year will mature in three years. So our n = 3. And our yield is 0.064. These give the following bond price:
1000/(1,064^3) = 830,19$

anonymous · Answer

Is it a zero coupon bond??
Compute the bond value with each rate, and then use the probability distribution to get the expected price. Don't use the distribution to get a new rate.