What is the expected value of the investment payoff

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Reference no: EM131444307

Consider a coupon bond that has a face value of $100 and matures in 5 years. The coupon rate is 6% and coupons are paid annually. The current interest rate that lenders are willing to let the issuer borrow at is 8%.

a. How much is the annual coupon payment?

b. What is the value of this coupon bond today?

Consider an investment that has a 20% probability of returning $500, a 35% probability of returning $700, and a 45% probability of returning $1,000.

a. What is the expected value of the investment payoff?

b. What is the standard deviation of the investment payoff (in dollars)?

Reference no: EM131444307

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