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

question 2

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 take one of three equiprobable prices, spaced $5 apart. The middle value of these possible prices is

• A) $90.25
• B) $94.75
• C) $95.00
• D) $100.00

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Definitions:

Amount in Controversy

The monetary value of the claim or dispute that is at stake in a legal proceeding.

Conciliation

An alternative dispute resolution process where a neutral third party helps the disputing parties reach a voluntary, negotiated resolution.

Nonbinding

An agreement or contract that does not legally oblige the parties to comply with its terms.

Informal Process

A procedure or method that is not formalized or structured by official rules, often used in resolving disputes or making decisions.