The obligation to pay fixed nominal amount

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Reference no: EM131980914

Let us consider that the obligation to pay a fixed nominal amount of $100 for 10 years from now. Assume that the appropriate annual interest rate for this instrument, denoted r, is currently 10%, but this rate will change immediately to a new level that is plus or minus 2% of the current level. What is the current value, and the value if r rises to 12% or falls to 8%?

Reference no: EM131980914

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