The price of a 2-year zero coupon bond is 0.8763 (use the continuous compounding). The price...

 

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The price of a 2-year zero coupon bond is 0.8763 (use the continuous compounding). The price of S&P 500 index is So = 1200. - The index provides dividend with 1.5%. The index volatility is 30%. Consider the equity linked CD that after 2 years pays S2 + y max(0, S2 - So) (a) What is the 2-year yield to maturity? Used the continuous compounding. You don't have to show your work. Just write the number. (2 points) (b) For what the price participation rate will the bond sell at par? Briefly show your work. (8 points) The price of a 2-year zero coupon bond is 0.8763 (use the continuous compounding). The price of S&P 500 index is So = 1200. - The index provides dividend with 1.5%. The index volatility is 30%. Consider the equity linked CD that after 2 years pays S2 + y max(0, S2 - So) (a) What is the 2-year yield to maturity? Used the continuous compounding. You don't have to show your work. Just write the number. (2 points) (b) For what the price participation rate will the bond sell at par? Briefly show your work. (8 points)

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Price of a 2year Coupon bond is 08... View the full answer