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Mathematics 7 Online
OpenStudy (anonymous):

You own a discount bond that has 4 years of remaining maturity and $1000 face value. You plan on selling the bond next year, and believe that the required yield next year will have the following probability distribution: Probability Required Yield 0.6 6.00% 0.4 7.00% What is your expected price when you sell the bond next year? I now have: 0,6 * 6% + 0,4 * 7% = 6,4 % Next year will mature in three years. So our n = 3. And our yield is 0.064. These give the following bond price: 1000/(1,064^3) = 830,19$

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