A $100 face value one-year risk-free discount bond is priced at $95. The two-year discount bond is priced at $90. After one year, the two-year bond will be worth either $91 or $97. The probability of this bond moving to a price of $97 is
A) 0.37
B) 0.50
C) 0.58
D) 0.62

Question

A $100 face value one-year risk-free discount bond is priced at $95. The two-year discount bond is priced at $90. After one year, the two-year bond will be worth either $91 or $97. The probability of this bond moving to a price of $97 is 
A) 0.37
B) 0.50
C) 0.58
D) 0.62

Quizplus · Accepted Answer

The Answer of A $100 face value one-year risk-free discount bond is priced at $95. The two-year discount bond is priced at $90. After one year, the two-year bond will be worth either $91 or $97. The probability of this bond moving to a price of $97 is 
A) 0.37
B) 0.50
C) 0.58
D) 0.62

A $100 Face Value One-Year Risk-Free Discount Bond Is Priced