Question: Suppose Bell Canada issued a zero - coupon bond that will mature exactly one year from today. The bond will pay $ 1 0 0

Suppose Bell Canada issued a zero-coupon bond that will mature exactly one year from today. The bond will pay $1000 in a weak economy, and $1100 in a strong economy. The bond is AA rated (meaning its not risk free, but fairly safe.) The appropriate risk premium for AA rated bonds is 2%(effective annual rate). The current riskless rate is 4%(EAR). The probabilities of a weak or strong economy are equal.
What is the current fair market value of the bond?

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