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You know that the assets of a firm JIFF are today worth 100 million. You reasonably...

You know that the assets of a firm JIFF are today worth 100 million. You reasonably feel that in a year they will be either worth 110 million or 90 million. You also know that a treasury bill maturing in one year is offering today a yield of 5%. The firm has a zero-coupon bond that matures in one year and has a face value of 100 million. What should be the value of this corporate bond today?

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Answer #1

Calculating present value using financial calculator :-

Inputs: Fv = 100 million

I/y = 5%

N = 1

Pmt = 0 , because it is zero coupon bond

Pv = compute

We get, Pv = 95.24 million

The value of corporate bond is 95.24 million.

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