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Questions
COEC_V 371 001 002 2025W1 2025W1 COEC 371 Final Exam Dec 16 - Requires Respondus LockDown Browser
Numerical
A client offers you the following deal: You will receive $6,000 for the next three years, one payment per year (that is, $6,000 at Year 1, Year 2, and Year 3). In exchange, you will pay $15,000 at Year 4. The current market prices of the following zero-coupon bonds (each with $100 face value) are: Bond A (1-year): price $95.24 Bond B (2-year): price $89.00 Bond C (3-year): price $81.63 Bond D (4-year): price $73.50 Using these bond prices, compute the net value today (Year 0) of the client’s deal to you. Enter your final answer rounded to two decimal places. For example, enter 1.23 if your answer is $1.234, and enter -1.23 if your answer is -$1.234.
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Standard Answer
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Approach Analysis
We start by interpreting the deal and the available zero-coupon bond prices. The client offers to pay you three future cash inflows of $6,000 at Years 1, 2, and 3, and you must pay $15,000 at Year 4. To value this today (Year 0), we discount each cash flow back to present value using the appropriate zero-coupon bond prices, which give the present value of $100 received at each fu......Login to view full explanationLog in for full answers
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