Consider two securities that pay risk-free cash flows over the next two years and that have the
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Question:
Consider two securities that pay risk-free cash flows over the next two years and that have the current market prices shown here:
Suppose a security with cash flows of $ 50 in one year and $100 in two years is trading for a price of $130.
What arbitrage opportunity is available?
Security | Price Today | Cash Flow in One Year | Cash Flow in Two Years |
B1 | $95 | $100 | 0 |
B2 | $84 | 0 | $100 |
Related Book For
Corporate Finance A Focused Approach
ISBN: 978-1439078082
4th Edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham
Posted Date: