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Determine the net present value of the risk -tree project

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Question - Suppose that a risk - free project produces the following cash flows:

Moreover, suppose that there are three risk - free bonds in the market (Bonds A, B, and C) that can be described as follows:

a) Bond A pays a $10 coupon at t=1 and matures at t=2 when the bondholders will receive $100. Today (i.e., at t=0) the market price of the bond is Ba = $98.75.

b) Bond B pays a $7 coupon at t=1 and also matures at t=2 when the bondholders will receive $120. Its price today is Bb = $113.63.

c) Bond C is a zero-coupon bond that matures at t=3 when the bondholders will receive $100. Its price today is Bc = $75.13.

Required - Using this information, determine the net present value (NPV) of the risk -tree project.

Reference no: EM133154184

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