# Question: Assume that the volatility of the S P index is 30 a

Assume that the volatility of the S&P index is 30%.

a. What is the price of a bond that after 2 years pays S2 + max(0, S2 − S0)?

b. Suppose the bond pays S2 + [λ × max(0, S2 − S0)]. For what λ will the bond sell at par?

a. What is the price of a bond that after 2 years pays S2 + max(0, S2 − S0)?

b. Suppose the bond pays S2 + [λ × max(0, S2 − S0)]. For what λ will the bond sell at par?

## Answer to relevant Questions

Assume that the volatility of the S&P index is 30%. a. What is the price of a bond that after 2 years pays S0 + max(0, S2 − S0)? b. Suppose the bond pays S0 + [λ × max(0, S2 − S0)] in year 2. For what λ will the bond ...There is a single debt issue with a maturity value of $120. Compute the yield on this debt assuming that it matures in 1 year, 2 years, 5 years, or 10 years. What debt-to-equity ratio do you observe in each case? As discussed in the text, compensation options are prematurely exercised or canceled for a variety of reasons. Suppose that compensation options both vest and expire in 3 years and that the probability is 10% that the ...Four years after the option grant, the stock price for Analog Devices was about $40. Using the same input as in the previous problem, compute the market value of the options granted in 2000, assuming that they were issued at ...Suppose you have a project that will produce a single widget. Widgets today cost $1 and the project costs $0.90. The risk-free rate is 5%. Under what circumstances would you invest immediately in the project? What conditions ...Post your question