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A bond can pay a co… - QuestionCove
OpenStudy (anonymous):

A bond can pay a coupon of either $4 or $2 in any year. In any year the (marginal or unconditional) probability of each outcome is 0.5. But, if the bond pays $4 this year, then the probability that it pays $4 next year is 0.6. Similarly, if it pays $2 this year then it pays $2 next year with probability 0.6. What is the probability that it pays $2 next year conditional on paying $4 this year?

4 years ago
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