3.[7 points] Consider a bank account with effective rate r >0. Determine the NA-prices of a...

 

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3.[7 points] Consider a bank account with effective rate r >0. Determine the NA-prices of a pure discount bond with maturity 1 year and nominal value $100, and of a coupon bond with $5 coupons each year for the next 2 years and nominal value $100. (a) (2pts) Show that the pure discount bond sells below par. (b) (5pts) Find interest rates r such that the coupon bond sells above par, at par, and below par. 3.[7 points] Consider a bank account with effective rate r >0. Determine the NA-prices of a pure discount bond with maturity 1 year and nominal value $100, and of a coupon bond with $5 coupons each year for the next 2 years and nominal value $100. (a) (2pts) Show that the pure discount bond sells below par. (b) (5pts) Find interest rates r such that the coupon bond sells above par, at par, and below par.