An asset with price S at time 0 pays some cashflows. The cashflows are worth C...
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An asset with price S at time 0 pays some cashflows. The cashflows are worth C₁ with probability p and C, with probability 1-p and are paid annually from time 1 to time T. Provide a formula for the asset price S by assuming that the (annualized) discount rate is r. An asset with price S at time 0 pays some cashflows. The cashflows are worth C₁ with probability p and C, with probability 1-p and are paid annually from time 1 to time T. Provide a formula for the asset price S by assuming that the (annualized) discount rate is r.
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Answer Each year cash flow is pC a 1pC b required rate r ... View the full answer
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