Determining the expected price-standard deviation, Finance Basics

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Determining the expected price-standard deviation

You own a $1,000-par zero-coupon bond that has 5 years of remaining maturity. You plan on selling the bond in one year, and believe that the required yield next year will have the following probability distribution:

Probability Required Yield

0.1 6.60%

0.2 6.75%

0.4 7.00%

0.2 7.20%

0.1 7.45%

a. What is your expected price when you sell the bond?

b. What is the standard deviation?

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Finance Basics: Determining the expected price-standard deviation

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Finance Basics: Determining the expected price-standard deviation

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Finance Basics: Determining the expected price-standard deviation

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