Consider an economy with three dates (t=0,1,2) and two safe bonds. Bond A has 2% coupon and

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Consider an economy with three dates (t=0,1,2) and two safe bonds. Bond A has 2% coupon
and Bond B has 3% coupon. The payoffs and prices of the bonds are given as follows

	t=1	t=2	price at t=0
Bond A	2	102	99.50
Bond B	3	103	100.25

(a) Is there an arbitrage?

(b) If yes, find an arbitrage portfolio.

Related Book For answer-question

Linear Algebra and Its Applications

ISBN: 978-0321791542

4th edition

Authors: David C. Lay

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Posted Date: Mar 15, 2023 08:05 AM

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Consider an economy with three dates (t=0,1,2) and two safe bonds. Bond A has 2% coupon and

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To determine if there is an arbitrage we need to check if there exists a portfolio of bonds that has ... View the full answer

Linear Algebra and Its Applications

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