Assume that the volatility of the S&P index is 30%. a. What is the price of a
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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? Discuss.
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The relevant two year interest rate is ln 108763 2 ...View the full answer
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