7, (10 points) Assume y1 = 1.5%, and also assume that the one-period spot rate...
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7, (10 points) Assume y1 = 1.5%, and also assume that the one-period spot rate next period can take the following two values with equal probability: y = 2.02% and ya = 1.11%. Assume that the market price of risk 2=0.5. Use CAPM for bonds to calculate the current price of a two-period bond (M=100). Also, calculate the Sharpe ratio of the bond investment: SR2 = - ment. SD _E(RETY)-y O(RET) 7, (10 points) Assume y1 = 1.5%, and also assume that the one-period spot rate next period can take the following two values with equal probability: y = 2.02% and ya = 1.11%. Assume that the market price of risk 2=0.5. Use CAPM for bonds to calculate the current price of a two-period bond (M=100). Also, calculate the Sharpe ratio of the bond investment: SR2 = - ment. SD _E(RETY)-y O(RET)
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