Analysts estimate that a bond has a 40 percent probability of being priced at $950 and a 60 percent probability of being priced

Question

3 years ago

12

at $1,050 one year from today. The bond is also callable at any time at $1,010. What is the expected value of this bond in one year?

1 answer:

AnnZ [28] · Answer 1 · 2021-11-23T10:11:08+03:00

Answer:

Explanation:

40% probability that bond will be priced at $950

60% probability that bond will be priced at $1050

Expected value of the bond in one year:

(Probability*Price of bond) + (Probability * Callable price bond)= (0.4*$950)+(0.60*$1010)=$986

So, expected value is $986