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

question 3

Multiple Choice

A $100 face value one-year risk-free discount bond is priced at $95. After one year, the two-year bond will be worth either $91 or $97. What (rounded to the nearest dollar) is the highest possible price of the two-year bond that is arbitrage-free?

• A) $91
• B) $92
• C) $95
• D) $97

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Definitions:

Changing Thinking

The process of modifying one's thought patterns, often towards more positive or constructive outcomes.

Removing Symptoms

A treatment approach aiming to alleviate or eliminate the physical manifestations of a condition without necessarily addressing the underlying cause.

Operant Conditioning

A method for learning where the potency of a response is adjusted by the application of rewards or disciplinary actions.

Aversive Conditioning

A method of behavior modification in which unpleasant stimuli are associated with undesirable behaviors to reduce or eliminate those behaviors.