Question: Consider the expected value of a three-year continuously compounded coupon bond with interest rate uncertainty. Interest rate the first year is 6% and it increases

Consider the expected value of a three-year continuously compounded coupon bond with interest rate uncertainty. Interest rate the first year is 6% and it increases randomly (50% higher, 50% lower) each year. The bond has a face value of $100 and a coupon rate of 5% of face. What is the expected present value and the yield to maturity?

Consider a bond as in question 1 but where the probability of interest rates changing are 60% higher and 40% lower. What is the expected present value and the yield to maturity?

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