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What is the most that an investor should be willing to pay

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Reference no: EM133003743

Problem 1: Suppose that the risk-free rate is currently 9% per annum (quoted as an APR). You read of a strange security that offers a risk-free payoff of $10 per month for the next 5 years. Then, exactly one year after the final $10 payment, the investment will make the first of 5 annual payments in the amount of $100 each. What is the most that an investor should be willing to pay for this security at this moment (one month before the first payoff)? At what price should the security sell after one year of monthly payments has elapsed?

Reference no: EM133003743

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