A $100 Face Value One-Year Risk-Free Discount Bond Is Priced

question 1

Multiple Choice

A $100 face value one-year risk-free discount bond is priced at $95. The two-year discount bond is priced at $90. After one year, the two-year bond will be worth either $91 or $97. The probability of this bond moving to a price of $97 is

• A) 0.37
• B) 0.50
• C) 0.58
• D) 0.62

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