Question: 11. (Running PV example) A (yearly) cash flow stream is x = (40, 10, 10, 10, 10, 10, 10). The spot rates are those of

11. (Running PV example) A (yearly) cash flow stream is x = (40, 10, 10, 10, 10, 10, 10). The spot rates are those of Exercise 2. Given the (yearly) spot rate curve s = (5.0, 5.3, 5.6, 5.8, 6.0, 6.1),

(a) Find the current discount factors d0,k and use them to determine the (net) present value of the stream.

(b) Find the series of expectations dynamics short-rate discount factors, and use the running present value method to evaluate the stream.

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