Determine the no-arbitrage price of each security

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1. Jennifer was about to be struck by a speeding car. Eva pushed her out of the car’s path, just in time to save her from being struck. However, Eva was herself struck by the car and was seriously injured. Several weeks later, Jennifer promised Eva that she would pay her $1,000 per month for life. Is Jennifer’s promise enforceable? Explain.

2. The promised cash flows of three securities are listed below. If the cash flows are risk-free, and the risk-free interest rate is 7.0 %, determine the no-arbitrage price of each security before the first cash flow is paid. (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)

 

Reference no: EM132073345

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