# Question

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

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