A 7% annual coupon bond (face value $1,000), with three years left till maturity is selling for $986.90. Zero-coupon bonds of 1, 2, 3 years maturity (all with face value of $1,000) sell for $950, $900, $820, respectively. Is this coupon bond properly priced? If not, show an arbitrage transaction to profit $2000 (today) from the mispricing.

Answer rating: 100% (QA)

Lets think through this stepbystep The coupon bond has a 7 annual coupon 70 per year It has 3 years ... View the full answer