Question: To help financing its green projects, a UK based company is issuing a number of new bonds. These bonds have a face value of 1
To help financing its green projects, a UK based company is issuing a number of new bonds. These bonds have a face value of coupon rate and year maturity. Assume that you can borrow from the riskfree market at the rate of and that the current short rate is but it is expected to be and with probability and respectively. Compute possible values of the bonds. Also, compute possible values of the bonds if they are inflation protected. Assume that inflation rate is a year.
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