Assume y1 = 1.5%, and also assume that the one-period spot rate next period can take the

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Assume y1 = 1.5%, and also assume that the one-period spot rate next period can take the following two values with equal probability: y1u = 2.02% and y1d = 1.11%. Assume that the market price of risk =0.5. Use CAPM for bonds to calculate the current price of a two-period bond (M=100). Also, calculate the Sharpe ratio of the bond investment:

Posted Date: May 16, 2024 04:07 PM

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Assume y1 = 1.5%, and also assume that the one-period spot rate next period can take the

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