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What is the price of a security that pays

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Consider six months as one period. Assume that the six-month and one-year spot rates are 2% and 2.5%, respectively. Assume that six months from now, the six-month spot rate will be either 1.8% or 2.2% with equal probability. What is the price of a security that pays $100 six months from now if the six-month spot rate then is 1.8% and pays $20 otherwise? Semi-annual compounding

Reference no: EM132528228

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