Assume that transaction costs are zero and there is no credit risk in any transaction. Suppose that: (1) the price at time 0 of a 2-year annual-pay coupon bond with face value $100 and a coupon rate of 5% is $90, and (2) the price at time 0 of a 1-year zero coupon bond with face value $100 is $86. What must be the time 0 price of a bond with the following risk-free cash flows?

Answer rating: 100% (QA)

determine the time 0 price of a bond with the given riskfree cash flows we need to calculate the pre... View the full answer