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 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 sell at par? Discuss.
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