- Question 2 22 Points Rubi Inc Is A Manufacturer Of High Quality Pillows Today The Company Issued A 5 Year Inflatio 1 (89.63 KiB) Viewed 11 times
Question 2 (22 points): Rubi Inc. is a manufacturer of high-quality pillows. Today, the company issued a 5-year inflation linked (real) bond with a face value of $1,000. The bond has an annual stated real interest rate of 6% and pays annual coupon payments. The face value of the bond is paid at maturity of the bond. Also today, Dan Ltd, a company which operates in the same industry and bears the same risks, issued a 5-year nominal bond for its face value, which reflects a YTM of 10% (This bond has the same level of risk and characteristics as Rubi's bond, except for the coupon rate and indexing mechanism). The annual expected inflation for the next 5 years is 2%. a. What was the price of Rubi's bond on its issuing date? Answer: The price of the bond is $_