Hi! I have a concern about QA chapter 9 answer to the question 9.4, which says that the probability of including a single irrelevant regressor is 1 - alpha, where alpha is the test size. But shouldn't it actually be alpha? As I am understanding this is that including the irrelevant regressor is incorrectly rejecting the true 0-hypothesis, which is a Type 1 error and the probability of that is equal to the test size. Or am I missing something?
I agree with @lushukai the coupons (of $1.25 each) and the final future cash flow ($100.25) are multiplied by the discount factors which returns their present values; the sum of the present values is the bond's theoretical price.