Consider two Bonds: 1) a zero-coupon bond with face value F maturing in 1 year; 2)...

Consider two Bonds: 1) a zero-coupon bond with face value F maturing in 1 year; 2) a coupon bond with face value F maturing in 4 years, i.e., T = 4, with coupon of $12 paid annually. Suppose that the continuous compounding is at the rate of r = 10%. (4a). If the price of bond 2 is equal to 1.15 times that of bond 1, find the face value F. (4b). If F = $100, how long will it take the value of bond 2 to reach $110 for the first time ?

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Rahul Sunny answered 1 year ago

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