What are the expected values of the bond

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Reference no: EM131583458

Consider three bonds, each promising to pay $100 in 10 years. The first bond is ABC bond that always pays. The other two are BCD bond and CDF bond, which may pay the full $100 dollars, or may default and only pay $0, The corresponding probabilities of these events occurring are:

CDF pays 100 CDF pays 0 BCD pays 100 0.25 0.4 BCD pays 0 0.2 0.15

What are the expected values of the ABC bond, BCD bond, and CDF bond? What are the variances of the ABC bond, BCD bond, and CDF bond? What is the covariance of the BCD bond, and CDF bond? What is the correlation of the BCD bond and CDF bond?

Reference no: EM131583458

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