What interest rate is required as a promise

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1. For what kind of bonds are expected interest rates and promised interest rates the same?

2. Are individual investors or investors in the aggregate more risk averse?

3. Recompute the example from the text, but assume now that the probability of receiving full payment in 1 year on a $200 investment of $210 is only 95%, the probability of receiving $100 is 1%, and the probability of receiving absolutely no payment is 4%.

(a) At the promised interest rate of 5%, what is the expected interest rate?

(b) What interest rate is required as a promise to ensure an expected interest rate of 5%?

Reference no: EM131234484

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